Clouds of doom and gloom hang heavily over the stock market. But I’m smiling when I look at this long-term income stock and its falling share price.
I’m talking of FTSE 250 housebuilder Crest Nicholson Holdings (LSE: CRST), and we have an update on its full-year outlook.
As one of the UK’s smaller builders, it’s surely more at risk from the ups and downs of the property market. It just doesn’t have the sales buffer of its big FTSE 100 cousins, such as Taylor Wimpey and Persimmon.
And the FTSE 250 firm does seem to be under more pressure now. A 21 August update told us that “against a backdrop of persistently high inflation and rising interest rates, trading conditions for the housing market have worsened during the summer of this year“.
The board cut its full-year guidance, now expecting adjusted profit before tax for 2023 to come in at around £50m. That’s down from the £73m indicated at the halfway stage.
Crest Nicholson shares fell a huge 12% when the market opened. And the price is now down 55% in the past five years.
Might this be a great time to buy before the storm starts to clear?
Despite the drop, a £50m profit still looks fair to me. And if that’s the worst we get when UK house prices are in their biggest slump for years, I see a resilient business.
The board also confirmed its committment to a full-year dividend of 17p per share. With the share price down at 170p at the time of writing, that’s a big 10% yield. But though it’s one of the best in the sector, the market wasn’t pleased.
Is the outlook for Crest even worse than this profit warning suggests? Well, some investors won’t be happy with one worrying development.
The mixed-use Brightwells Yard project in Farnham looked set to make a loss of £11.6m at interim time. But it’s now widened by a further £4m. That’s no small change for a firm with annual profits of £50m.
Still, there are two key things that put housebuilders among my favourite long-term income stocks. And Crest Nicholson touched on both in this update.
“Over the medium term [the board] expects inflation to abate and mortgage rates to start to reduce“. That’s key. And, surely, we all know it has to happen, don’t we?
The statement also spoke of “an experienced leadership team who are used to trading through downturns in the cycle“.
And the cyclical nature of the housing market might just excite me most.
Best time to buy
A cyclical sector might be a poor choice for investors with a horizon of just a few years. And a smaller firm like Crest Nicholson could well face more pain before things improve.
But when a cyclical stock is down, its shares look cheap, and it’s a business with good long-term cash potential, isn’t it the best time to buy?