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TEMPUS | TOM HOWARD

Should I buy shares in Crest Nicholson?

The housebuilder’s shares are cheap after stumbling from one problem to another, but a turnaround is under way
Collage of a housing development, stock market graph, construction worker, and Crest Nicholson logo.

Crest Nicholson, the housebuilder, is at the beginning of its turnaround, having stumbled from one problem to the next over the past couple of years.

It repeatedly struggled to work out how much it would cost to fix dangerous cladding and other safety defects on its older books, and kept running into cost overruns at one of its biggest and most complex developments in Farnham, Surrey.

For much of 2023 and 2024, almost every time Crest updated shareholders it was to report another problem at Farnham or increase the cladding provision.

Martyn Clark, who had been chief commercial officer at the rival developer Persimmon, was brought in last summer to plot its revival. He is well thought of in the industry and has managed to stabilise the business, as Thursday’s half-year results showed.

Crest turned a pre-tax profit of £9.4 million in the six months to the end of April, having sunk to a pre-tax loss of £30.9 million in the same period a year earlier, when it had to set aside — once again — more money to fix defects at some of its older developments.

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In his first year in charge, Clark has largely sorted the two main issues — Farnham and cladding — through a mixture of luck and management. Mercifully, Crest is now almost finished at the Farnham development, bar a bridge which will soon be built.

Crest’s cladding provision — the amount it thinks it needs to spend to replace dangerous cladding at blocks of flats it built in the past — has been increased to £223 million. That is £84 million more than the £139 million it was guiding to in 2023, which was met with scepticism. Most think the current estimate looks about right.

The business is undoubtedly on a sounder footing, but the scars of the past are still evident. At 4.8 per cent, Crest’s operating margin lags most of its rivals and its output has more than halved since 2023, although some of that reflects the broader slowdown in the housing market.

Clark’s challenge now is to get Crest growing again. By 2029 he wants to get completions back up to 2,300-plus a year and restore the gross margin, currently at 14.2 per cent, to above 20 per cent. His ambition is to establish Crest Nicholson as a builder of “mid premium” houses — something akin to a mini Redrow.

Crest’s difficult few years have left it lowly valued compared with its peers. Its shares trade at 0.7 times book value: effectively, its stock market value is 30 per cent below the value of the land on its balance sheet. The average multiple across the sector is 1 times book value.

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If Clark hits his targets over the next four years — and most analysts think with a fair wind he should — then Crest will almost certainly close that valuation gap.

There are broader tailwinds that should help him too. The market has been steadily improving throughout 2025 as mortgage rates have retreated and Labour is keen to “get Britain building”. The new government is trying to speed up the planning process; has committed £39 billion to affordable housing over the next decade; and there are calls for it to go a step further and bring back Help to Buy. Yes, house prices are not rising much, if at all, but neither are build costs.

With a combination of self-help and an improving market backdrop, Crest shares, which remain a quarter below where they were last summer, look a decent bet. Those with an appetite for risk might fancy a wager that Clark will hit his targets and Crest shares, as a result, will outperform those of rival builders.

But there remains an execution risk. The company issued a “going concern” notice in Thursday’s half-year report noting that, if a number of things go against it, which it calls a “severe but plausible” scenario, then it could default on its debt repayments.

That may be a bit over the top, but there is no guarantee Clark and his team, no matter how capable they are, will deliver the turnaround as quickly as they are hoping.

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There are other stocks in the sector — say Bellway or Barratt Redrow — which do not have the self-help potential of Crest but which are well-positioned into an improving market. They look a safer bet.

Advice Hold

Why Shares are cheap versus sector and there is potential to outperform, but safer bets elsewhere in the sector

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