RBC Capital upgrades Crest Nicholson to 'outperform', lifts price target

(Sharecast News) - RBC Capital Markets upgraded Crest Nicholson on Friday to 'outperform' from 'sector perform' and hiked the price target to 230p from 180p after the housebuilder's capital markets day on Thursday.

"Crest Nicholson's new chief executive has a plan," the bank said.

"He has cast his eye over the group and, perhaps in homage to the late great Eric Morecambe, has concluded that Crest has all the pieces it needs for success, but has been playing them in the wrong order.

"The group now has a chance to return to growth in volumes, margins and returns. With its operational issues now largely behind it, the future has got brighter."

RBC said that by FY2029, it believes Crest could look like "the Redrow of the South".

It noted that Crest's new strategy is to focus on the mid-premium sector. Rather than try to build all homes for all people it is focused on those with more money who are able to afford some of the finer things in life, RBC said.

It said that typically these are households with more equity than typical first time buyers and those willing to pay more for bigger rooms, higher ceilings and higher specifications, "because, as some might say, they are worth it".

RBC said that while it does not believe that Crest needs rocket fuel to reach its targets, the capital markets day "did not allow us to kick the tires as much as we'd like".

"We felt the detail around landbank margins and strategic land was somewhat vague, leading us to believe that either the margin and return guidance is too low or the embedded margins are not as high as they seem," RBC said.

As a result, the bank's new price target is based on a P/B multiple of 0.75x "to reflect the known unknowns".