Crest Nicholson warns over profits amid Iran war impact on costs and demand

Housebuilder Crest Nicholson has slashed its outlook for sales and profits as it warned over the impact of the Iran war on costs and buyer confidence.

The group saw its shares plunge by 45% at one stage after it said it would deliver fewer homes this year and warned that this, plus rising build and energy costs because of the Middle East conflict, would see underlying earnings come in at a lower-than-expected £5 million to £15 million.

Debts will also rise to £100 million to £120 million, up from £38.2 million in the year to October 31 and far higher than the £15 million to £65 million it previously forecast.

The group is now seeking temporary relaxation of the terms of its agreements with lenders.

Crest said it had seen a slowdown in new inquiries and visitor levels since its last update in March, as well as a “marked” softening in sentiment among land buyers, who “have become more cautious in the face of the uncertain outlook”.

The builder has cut its expectations for homes completed in the current year to between 1,400 and 1,500, down from 1,550 to 1,700 previously, and now anticipates reduced land sales of around 40 million, down from £75 million to £100 million previously forecast.

Crest said it was acting “quickly and decisively” to prioritise cash and balance sheet strength amid the more difficult trading conditions.

Chief executive Martyn Clark said: “It is increasingly clear that the current macroeconomic uncertainty is contributing to the prospect of a more prolonged higher interest rate environment, renewed cost pressures and a deterioration in consumer confidence.

“Therefore, in the near term the right and prudent course of action is to adapt quickly to the challenges presented by the current trading environment and focus on prioritising cash generation and optimising our balance sheet position.

“We are doing what needs to be done to navigate this uncertainty to best position the business to deliver the attractive medium-term opportunity.”

Analysts at Peel Hunt said the earnings guidance points to pre-tax profits being “well below” the current consensus for £33 million.

Victoria Scholar at Interactive Investor said: “This is a very bleak update from Crest Nicholson, underscoring how the Iran war and the energy crisis have created painful headwinds for the housebuilder sector.

“Interest rate sensitivity among housebuilders means that the conflict’s inflationary impulse not only adds to significant build cost pressures from higher energy but also threatens the demand outlook as the higher-for-longer outlook for interest rates dampens mortgage affordability and softens demand for borrowing.”