Crest Nicholson (LSE:CRST) shares have made gains over the last month. And that’s good for shareholders who have seen the value of this stock steadily decline over the past year.
The FTSE 250 stock is certainly trading at a discount, having fallen from highs of over £6 a share in 2017. It’s now trading at less than £3 a share, despite gaining 14% over the past month.
I actually already own some Crest Nicholson shares. But have I just missed a good opportunity to buy more?
Should you invest £1,000 in Crest Nicholson right now?
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Crest Nicholson performance
The housebuilder actually saw its profits decline before the pandemic. In 2019, Crest Nicholson blamed Brexit uncertainties for putting off buyers and “breeding unease“, which compounded an already sluggish London market.
The company is known for building in the south of England, and has historically achieved higher average selling prices than other housebuilders. Pressure on the London market, even before the pandemic, saw the share price plummet.
As part of a restructuring, Crest shelved the planned opening of its South East division and closed its central London office.
Pre-tax profits were £87m in 2021, still less than the £102m earned in 2019 and less than half the £207m achieved in 2017. However, it was a considerable improvement from the £13.5m loss made in 2020.
Prospects
2021 results showed that things were looking up for the business. The board spoke of a “transformed” balance sheet, with net cash at year-end totalling £252m, up from £142m at the end of 2020. Return on capital employed increased to 17.2% from 7.6%.
In January, the group said that 63% of revenue for the 2022 financial year was already covered. House prices have also been rising, which should be good for housebuilders.
Headwinds
Crest Nicholson predicted 2022 would be less volatile than previous years. However, it hasn’t been that stable.
Inflation, a cost of living crisis and higher interest rates have also weighed on developer share prices. And there are signs that demand for new homes might finally be cooling as house prices only grew 1% in May, according to Halifax data.
Crest has also had to pledge more money to remove flammable cladding from homes it developed. The firm was seemingly less exposed to these costs than other housebuilders. However, after signing the government’s fire safety pledge in the Spring, Crest Nicholson said it would set aside a further £120m.
The total cost of the cladding pledge could reach around £167m. Berenberg said it could totally wipe out the firm’s 2022 profits and would roughly have a 10% impact on equity.
So, should I buy more Crest stock?
Despite the headwinds and the cladding costs, I think Crest looks like a good stock to buy and hold. So, yes, I would add more Crest Nicholson shares to my portfolio at this price.
