Bad Results, Real Assets

Interim results for the six months to 30 April 2026, published today (16 July 2026) after a delay from June to complete the covenant reset process with lenders. Crest Nicholson’s financial year ends 31 October. All figures in pounds sterling.

Crest Nicholson is a UK housebuilder focused on Southern England, the Home Counties, the Midlands and, more recently, Yorkshire, positioning itself as a mid-premium builder. It buys land, secures planning permission, builds homes and sells them — across open market sales, affordable housing, and bulk deals to institutional buyers. It also periodically sells surplus land, which has historically been a meaningful profit contributor.

The key thing to understand for the valuation that follows is that a housebuilder is, in balance-sheet terms, a collection of land and half-built houses. That inventory — not the current year’s trading — is where the value sits, and it is why a company posting dreadful profits can still be worth considerably more than its share price implies.

Interim results — HY26 vs HY25

Revenue fell 20.8% to £197.6m — a shockingly large drop. Completions fell 21.0% to 584, with the reduction spread across bulk deals (63 vs 107), affordable (107 vs 197) and open market (414 vs 435). The company says volumes slipped because of current economic uncertainty — but that is not what I am seeing from other housebuilders, which is why I have mapped their sites below. The open market sales rate was 0.48 against 0.53 a year earlier. Net debt shot up a shocking amount, to £141.8m from £71.5m — and £209.7m including land creditors.

They are saying gross margin slipped so dramatically because of the reduction in housing volume, which makes some sense. Of the £21.5m fall in adjusted gross profit: £12.7m was volume and mix, £3.5m lower land profit, £3.6m of additional net realisable value provisions from cutting prices on completed apartment stock, and £1.7m of completed-site costs. Cost inflation was about 3–4% on average, mostly on materials — which is fine, roughly in line with what we see at other companies.

The land disposal programme is still ongoing — one transaction completed in the half, with total land-sale revenue for the year expected around £40m and cash proceeds of around £50m contracted to settle in the second half (plus around £10m into FY27). No interim dividend is proposed.

Guidance for the full year against last year’s outturn

FY25 completions implied by the company’s own share-based payment disclosure (1,400 represents a 17% reduction from 2025). FY25 EBIT is adjusted operating profit; FY25 interest is the pre-exceptional finance expense. Net debt on the company basis (cash less interest-bearing borrowings, excluding leases).

The comparison is stark: guidance implies EBIT of £5–10m against £34.7m achieved in FY25, on volumes down a further 11% to 17%, with interest of £15m consuming the entire operating result. That is why the covenant is under strain — the interest cover ratio compares exactly these two numbers.

The accounts are prepared on a going-concern basis, but with a formally disclosed material uncertainty.

The debt

The covenant problem

The Group has three covenants; the one in trouble is the Interest Cover Ratio — essentially EBIT divided by interest. With guided EBIT of £5–10m against £15m of interest, the ratio fails arithmetic that any lender would run. The company confirms the covenant would have been breached if measured at 30 April 2026. Lenders have granted a temporary waiver: the ratio will instead be measured at 31 August 2026 and reported by 30 September 2026, and during the waiver the credit facility is capped at the £175m already drawn. The company’s expectation is that a new covenant will replace the test before the waiver ends — discussions are described as well-advanced, positive and productive — but the replacement covenants, and Crest’s ability to comply with them, are not yet confirmed.

Base case vs Severe But Plausible

The base case assumes sales rates stay below long-term averages, land receipts in line with recent years, and stable outlets. Even in this base case, the existing covenant is not expected to be met once the waiver ends. If that happened and no amendment or extension were agreed, it would be an event of default: the facility and the loan notes would become repayable on demand, and the Group states plainly that it would not expect to have the liquidity to repay.

The Severe But Plausible downside then layers on: sales falling to around 1,400 units a year, a 5% cut to selling prices from October 2026, 3% build-cost inflation on non-fixed costs, land sale receipts halved to £15m a year, and a 21% (£4m) rise in interest costs. In that case the Group would additionally need to refinance the £50m notes before August 2027, because it could not repay them. Mitigations modelled include slowing build rates, cutting land buying and removing dividends. The directors believe the Group can continue for at least twelve months, but a material uncertainty exists that “may cast significant doubt on the Group’s ability to continue as a going concern.”

What it actually means

Crest Nicholson’s survival in its current form depends on its lenders agreeing new covenant terms in the next ten weeks. The equity is, right now, an option on that negotiation concluding successfully. If the amendment is signed — which both sides evidently expect, since the banks have already extended waivers twice and the alternative (forcing a fire-sale of a land bank into a weak market) serves nobody — the going-concern language falls away and attention returns to the operational recovery. If it were not signed, the debt becomes repayable on demand and the equity would be substantially at risk.

The probability strongly favours resolution: lenders extended rather than enforced, the security (land and homes) is real and liquid, and the disposal programme is bringing £50m of contracted cash in the second half. But it is the reason the shares trade at 67p against 268p of stated net asset value per share — and it is why my valuation applies a very large discount.

To understand why Crest’s volumes have fallen where other housebuilders’ have held up, I have mapped every live and pipeline development the company lists — 50 sites in all (42 live, 8 coming soon).

The map makes the problem visible. This is overwhelmingly a Southern and Eastern England footprint — Hampshire, Surrey, Berkshire, Sussex, Kent, Essex and the Home Counties — plus a Midlands band and a small, newer Yorkshire cluster. There is nothing in Scotland, Wales or the North West.

That geography carries the highest selling prices in the country: Crest’s open-market average selling price is £414k against a UK new-build average nearer £300k. At a 3.75% base rate — which markets now expect to stay higher for longer — it is exactly these higher-price, deposit-heavy Southern buyers whose affordability is most stretched, while the volume builders weighted to cheaper Northern and Midlands stock have reported firmer sales rates through the same period. Add to that a small estate — just 41 average outlets, so each slow site moves the needle — the closure of the Chiltern division in November 2025, and completed apartment stock that is having to be discounted. It is a concentrated, high-price, South-weighted book selling to the most rate-sensitive buyers in the country.

I would say though, that this is a theoretical reason. While it might make some sense, other southern and eastern based housebuilders do not appear to be having the same issues.

Exceptional items — HY26

Three observations. First, the largest items are legacy, not current trading: cladding remediation and pre-2019 build defects account for £13.6m of the £17.9m including the imputed interest. Second, they are not all one-offs in practice — the combustibles imputed interest recurs (£3.6m this half, £9.4m last full year), and the completed-sites provision has now needed topping up twice, which suggests the original £25m estimate was light. Third, there is offsetting good news: £3.8m of remediation recoveries from third parties have come in since the half-year end, taking cumulative recoveries above £35m. The provisions on the balance sheet remain substantial — £200.0m in total — so the exceptional line will not fall silent soon, but the direction is of a legacy book being worked through rather than a new problem emerging.

Also concerning me: net asset value has slipped from £726.8m to £688.8m over the past twelve months — a 5.2% downward shift — driven by the statutory loss and the increase in interest-bearing borrowings. That is not good.

But the composition of those assets matters enormously for the valuation: £1,052.5m of inventories, of which £632.1m is land, £311.6m work-in-progress and £83.9m completed buildings — carried after a net realisable value provision of just £17.1m. These are real, saleable assets.

The margins have completely slipped, and I don’t fully understand how they have managed to fall so far on volumes where other property companies have held up — though the map above supplies some answer: a concentrated, high-price Southern estate selling to the most rate-sensitive buyers, at the moment consumer confidence wobbled.

The short term is likely to be quite choppy on a trading basis: these are bad results, the market does not like them, there is a lot of share-price volatility, and there is substantial short interest — 8.1% of the stock across multiple funds — which weighs on the price. The covenant negotiation is an overhang, and until it signs, the shares will trade on fear rather than fundamentals.

But here is the thing: they still hold land and units for sale that are truly worth something — quite a lot, in fact, because land with planning in Southern England is a relatively liquid kind of asset that will be of interest to potential buyers. Even taking in all of the issues — the covenant, the losses, the debt, the legacy provisions — I would claim the company is still very much worth a considerable amount of money, even though the operating performance is terrible.

For my valuation I am continuing to use net asset value rather than earnings — earnings are at a cyclical trough and tell you nothing about what the assets would fetch. Net asset value stands at £688.8m. I am discounting it by 40% — a huge discount, deliberately so, to absorb the covenant risk, further writedowns, the legacy provisions and everything else on the worry list — which takes it down to £413.28m, or 160.97p per share. The growth rate and valuation multiple are ignored in asset mode. I apply a 20% risk factor and a 50% probability, and I am a buyer.

VALUATION SNAPSHOT

This gives an actual valuation of 160.97p against a current share price of 67.00p — a value opportunity of +140.3%. To be clear about what the market is saying: at 67p the shares trade at around a quarter of stated net asset value per share (268p), which prices in not just the covenant risk but something close to a distressed outcome.

My 40% discount already assumes meaningful value destruction — land written down, provisions topped up, dilution risk — and the shares still offer well over double from here if the covenant amendment signs and the company simply muddles through. The short interest of 8.1% cuts both ways: it depresses the price today and provides fuel for a sharp recovery on any resolution. The risks are real — this is not a Grade A+ because it is safe, but because the asymmetry between the asset value and the price is the widest on my current list.

• The covenant amendment is not signed: The single biggest risk. If lenders do not agree new terms before the waiver ends, the facility and loan notes become repayable on demand — and the company states it would not have the liquidity to repay. The equity would be substantially at risk.
• Dilution: Even in a resolution, a rescue equity raise at a depressed price would badly dilute existing holders — a real possibility my 40% discount is intended to absorb, but which could go further.
• Further writedowns: Inventories of £1,052.5m carry an NRV provision of only £17.1m. If prices are cut harder, that cushion is thin and the asset value that underpins the whole case erodes.
• The volume problem is company-specific: Other Southern housebuilders are not seeing the same collapse. If the cause is execution rather than geography, the recovery is slower and less certain than the map story suggests.
• Legacy provisions keep growing: £200.0m of provisions remain, and the completed-sites estimate has already been topped up twice. The exceptional line will not fall silent soon.
• Trading gets worse before it gets better: Guidance implies interest consuming the entire operating result, net debt doubling, and volumes down a further 11–17%. There is no quick operational fix.

• The covenant amendment signing: The single clearest catalyst. It would remove the going-concern language, shift attention back to fundamentals, and likely force a sharp short-covering rally given 8.1% of the stock is short.
• Land disposals landing at or near book value: The £50m of contracted second-half cash settling as planned would validate the asset values I am relying on. If land sells well below book, my discount was not big enough.
• Sales rates stabilising: Any sign the 0.48 open-market rate is bottoming would suggest the volume collapse is cyclical rather than structural.
• A rate cut or improving affordability: Crest is the most rate-sensitive builder on my list given its £414k average selling price. Falling rates would help it more than most.
• An approach for the company or its land: At a quarter of net asset value, with a liquid Southern land bank, the asset value could be crystallised by a bidder rather than by management.