Investing.com -- Crest Nicholson (LON:CRST) has received an upgrade to an "outperform" rating from RBC Capital Markets, which now sees the homebuilder as well-positioned to capitalize on its strategic shift towards the mid-premium housing sector, in a note dated Friday.
The revised price target has been raised to 230p from 180p, reflecting confidence in the company’s potential for growth in volumes, margins, and overall returns.
The company’s new leadership has steered operations towards a refined strategy, moving away from a broad-spectrum homebuilding model to one that focuses on mid-premium properties.
As RBC analysts put it, “Crest has all the pieces it needs for success, but has been playing them in the wrong order.”
This segment targets financially secure buyers seeking higher specifications, larger living spaces, and premium finishes.
RBC believes this realignment enhances the company’s ability to withstand economic fluctuations, as mid-premium customers typically have more financial stability compared to first-time buyers.
Crest Nicholson’s land holdings support this strategy, being concentrated in the South and East of England—regions with higher household incomes than national averages.
According to RBC, this geographic advantage positions the company well against competitors in an affordability-constrained market.
As one analyst put it, “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.”
The company’s medium-term goal of achieving a 13% return on capital employed (ROCE) by FY2029 could lead to a revaluation of its shares.
“A 13% ROCE could imply a 1.1x P/TBV based on comp analysis, implying a potential c.420p share price in FY29,” RBC noted, flagging the upside potential if the company meets its targets.
For FY2025, revenue is projected to reach £642 million, with operating profit estimated at £40.9 million.
Earnings per share are expected to rise to 9.08p, up from 5.62p in FY2024. Gross margins, which fell to 14% in FY2024, are forecast to recover to over 20% by FY2029, driven by a move away from bulk sales, more efficient land acquisitions, and a focus on higher-value developments.
Crest Nicholson has taken steps to address operational inefficiencies and legacy issues, particularly its reliance on bulk sales and fire safety remediation costs.
The company is shifting towards private home sales to improve profitability, despite potentially slower volume growth.
Fire safety remediation efforts have also been accelerated under a newly established central remediation division.
RBC notes that 211 buildings have been assessed, with work already initiated on 60% of affected properties. The company aims to complete all assessments by mid-2025 and resolve outstanding issues within five years.
While RBC acknowledges some uncertainties around landbank margins and strategic land investments, the brokerage remains optimistic about Crest Nicholson’s trajectory.
However, analysts expressed a desire for more details on certain aspects of the strategy, stating, “We do not believe that Crest needs rocket fuel to reach its targets, [but] the CMD did not allow us to kick the tires as much as we’d like.”
RBC’s valuation model assigns a price-to-book (P/B) multiple of 0.75x, reflecting some of these unknowns.
However, if Crest Nicholson executes its strategy successfully, analysts see room for further upside.
RBC’s upside scenario suggests a potential share price of 350p, while the downside scenario estimates a floor at 120p.