Analysts at Berenberg reiterated their ‘buy’ rating on Crest Nicholson on Wednesday after the group became the first listed housebuilder to sign up to the government’s Building Safety Programme.
Berenberg believes the move will have a roughly 10% impact on equity and that the resulting exceptional charge will more or less wipe out full-year 2022 reported profits as provisions increase by £80-120.0m.
“By signing up to the government’s Building Safety Programme, Crest is making a commitment to fix all critical fire-safety issues on buildings above 11 metres that it has constructed over the past 30 years, and to do so without drawing on the Building Safety Fund (c£5bn, funded by c£2bn from the RPDT (residential property developer tax) and the remainder coming from government). Management estimates that this will add £80m-120m to the group’s provisions. When combined with the c£50m already provided for, this brings the total capital committed to between £130m-170m,” said Berenberg.
“In our forecasts, we have assumed the top end of the range, and that the costs provide a tax shield at the group’s corporate rate. This results in a reduction in our FY22 equity forecast of c10% and reported profits are reduced to £3m.”
However, the German bank highlighted that while the costs will reduce cash generation over the forecast period, it does not think that will affect the group’s target of growing completions to 4,200 by 2026.
Berenberg also kept its 410.0p target price on the stock in place.
