MENU

As Crest Nicholson Holdings plc Flies, Is The Housebuilder More Attractive Than Persimmon plc Or Taylor Wimpey plc?

FTSE 250 housebuilder Crest Nicholson Holdings (LSE: CRST) operates in the southern half of England, and the firm makes an interesting alternative investment proposition to its bigger FTSE 100 rivals, Persimmon (LSE: PSN) and Taylor Wimpey (LSE: TW).

Room to grow

One argument for buying into smaller outfits on the stock market is that such firms have room to grow and can trounce the performance of their lumbering big-company competitors. However, we need to balance that theory against the advantages a big firm can bring to a market with enhanced financial clout and network efficiencies, a situation with particular relevance in the housebuilding sector perhaps.

That said, we can’t argue about Crest Nicholson’s impressive interim results released today. Housing revenue is up 29% on the year-ago figure, operating profit margins up 60 basis points at 19.1% and earnings per share up 51%. The firm says it achieved additions to both short-term and strategic land pipelines with the overall value up 22% at £10.1 billion. Forward sales are up 26% and the firm hiked the interim dividend by 56% — there’s no doubt about it, Crest Nicholson is flying!

A fertile environment for growing houses

All housebuilders find the macro-economic environment and structural characteristics of the housing market to be beneficial right now. Crest Nicholson’s chief executive reckons sustained demand for new homes underpins strong sales rates. Improving economic circumstances and a clear outcome in the General Election provide a good operating backdrop for the sector and give the firm confidence to increase its volume target. The business, he says, is well positioned to continue on its growth trajectory, which he expects to generate strong returns for shareholders.

However, reading the outlook statements from most housebuilding firms we find a similar story, so where should we invest?

Where’s the value?

A quick survey of figures for each firm throws up these valuation indicators:

 

Share price

P/E 2015

P/E 2016

Price to net asset value

Net gearing

Taylor Wimpey

184p

12.5

11

2.34

55%

Persimmon

1929p

13

11.5

3

36%

Crest Nicholson

540p

11.5

9.4

2.7

79%

Crest Nicholson’s earnings multiples seem the most attractive although the firm is also the most aggressively geared.

What now?

Before plunging into the sector now, I’d argue the need to consider the cyclicality of the housebuilding trade. All these companies’ shares have already enjoyed a good run in the up-leg of the current macro-economic cycle. Cyclical shares can end up looking the most attractive on traditional valuation measures when they are at their most dangerous. However, the sector still seems to enjoy good momentum and there could be more to come for investors.

Housebuilders such as Crest Nicholson, Persimmon and Taylor Wimpey have their attractions, but none of these firms is one of five super-shares listed in the FTSE 100 index capable of making superior long-term investments that our top analysts identify in a special wealth report. You may find out the identity of these five potentially solid investments, free of charge, simply by clicking here.

Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.