Crest Nicholson (LSE:CRST) is a FTSE 250 stock that has endured a prolonged period of volatility. The housebuilder’s share price plummeted just days after Theresa May called an election in 2017 and failed to win a big majority — I remember this well.
The last two years have been particularly volatile too. The stock now trades near its pandemic-era low.
So, let’s take a look at what’s been impacting the share price, and why I think it looks like a good buy right now.
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What’s behind the share price volatility?
Crest Nicholson ran into trouble before the pandemic. In 2019, it blamed Brexit uncertainties for putting off buyers and “breeding unease“. But the developer, which primarily operates in the south of England, was already being impacted by a sluggish London property market.
With the share price plummeting, it embarked on a restructuring programme that saw the planned opening of its South East division shelved. The central London office was also closed.
Despite a booming property market in 2021 and so far in 2022, like other housebuilders, it has seen its share price tank again. Pressures include concerns about inflation, higher interest rates and the cost of recladding thousands of properties as part of the government’s fire safety pledge.
Crest Nicholson said it would set aside a further £120m to fund recladding operations after signing the pledge.
Performance and valuation
In June, it raised its full-year outlook, despite swinging to an interim loss due to the fire safety pledge, and said it expected to counter cost inflation with higher selling prices.
Completions rose to 1,096, from 1,017 year-on-year, while forward sales secured as of June 10 stood at £814.9m from £692m the year before.
The company said it expected full-year adjusted pre-tax profit to be £135m-£140m, compared with £45.9m a year before. Crest put the cost of recladding at £105m during the first half of the year.
The firm has a price-to-earnings ratio of 7.5, which is above some in the industry, but still looks very cheap compared to the market as a whole. Crest is arguably on a more upward curve than its peers following a restructuring period.
Prospects
The housing sector is facing some uncertainty right now. Higher rates should be weighing on demand for housing, but it’s not quite happening yet. Although there are some signs that the housing market is cooling.
The Royal Institution of Chartered Surveyors recently said that 27% of housing market professionals were noting a fall in interest from potential house buyers.
But it’s clearly not as bad as some investors anticipated. And for me, that makes now a good time to buy Crest Nicholson.
The share price is near its 52-week low and I’m bullish on long-term demand for property. As such, I think the current 252p share price represents a good entry point for me.
I actually already own Crest Nicholson shares, but at that price I’d buy more.
