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Crest Nicholson and McCarthy & Stone may present lacklustre view of housing market

Tuesday should also see a year-end trading update from drinks maker AG Barr and over-50s insurance and travel group Saga

McCarthy & Stone PLC -

Investors have two looks at the housebuilding market on Tuesday, though neither of them is likely to be totally positive.

When we last heard from Crest Nicholson Holdings PLC (LON:CRST) it was a profit warning in October, which was delivered alongside a strategic update from new chief executive Peter Truscott.

Due to volatile trading, particularly at certain London sites, profit guidance was cut 20% for the 2019 to £120-130mln and by around another 30% to £110-120mln for 2020.

After a review of the business since he started in September, Truscott said the builder was going to focus on making “material and sustainable” cuts to overhead costs, as well as more selective land sales and increasing the mix of tenures sold from its sites.

As a result of the general election result delivering a more decisive UK political situation, pretty much all housbuilding sector analysts say the outlook has improved, though those at Peel Hunt said the main question for Crest is how quickly Truscott can make improvements to the performance.

With Crest one of the more lowly rated housebuilders, Peel Hunt said the shares’ 7.8% dividend yield “is attractive”, but the cover provided by earnings is only “modest”.

McCarthy's trials

McCarthy & Stone PLC (LON:MCS) is a stock that has divided analysts and investors, it seems, though shares stand more than 50% above their low from mid-2018.

This was helped in part by the government decision last summer that retirement homes would be exempt from new rules preventing developers from charging ground rents and from selling new-build houses on a leasehold basis.

Furthermore, while there was a general positive reaction post-election with many analysts upping their expectations for the wider sector, one exception for a few of them was McCarthy, with Canaccord Genuity downgrading to a ‘sell’ recommendation on valuation grounds and seeing “little margin improvement” for the company in the year ahead.

UBS, another with a ‘sell’ rating, noted that as the company has already mostly guided to £720mln of full year sales and £68mln of operating profits it will be looking at the “quality of the profit figure”, ie how much is made up from non-cash revaluation gains on rental assets.

The key for the UBS analysts will be guidance for the coming year, “and to what extent trading has improved following the elections”.

More positive were those at Deutsche Bank, which upgraded McCarthy to ‘buy’, even though sales and profits are forecast to fall this year.

Saga ahead for Sutherland

Saga PLC (LON:SAGA) will deliver a year-end update, which will be the first time we catch up with new chief executive Euan Sutherland, who started in December and who we last saw at Superdry.

With activist hedge fund manager Elliott Management having built up a 5% stake in the over-50s insurance and travel group last year, Sutherland's pronouncements will been keenly watched.

The veteran CEO, who is used to a bit of a battle from his time at Superdry and the Co-operative Group, has arrived with the shares sitting almost 80% lower than where they were three years ago.

Previous CEO Lance Batchelor's attempts to overhaul the group have included selling third-party products, a VIP membership scheme to offset falling numbers of high-spending cruise customers and the launch last year of a new three-year fixed-price insurance product.

Sutherland's update may show a new direction, but Peel Hunt felt more certainly that it will focus on the turnaround of the insurance broking business, but also on the progress of the travel business following the launch of the new cruise ship.

Saga's guidance for full-year profit before tax is £105-120mln, but the Peel Hunt estimate is below this range at £99mln, with an assumption for a flat dividend at 4p per share.

"After a turbulent year, the shares trade at a P/E of 6.0x and should be supported at these levels by a reiteration of the profit guidance and positive underlying momentum in the business."

Barr opens the full-year can

Over in the drinks sector, things have not been much better for AG Barr PLC (LON:BAG), the manufacturer of Scotland’s bright orange pride and glory, Irn Bru.

The FTSE 250 group had a tough first half, with declines in both revenues and profits, as it compared against an “unprecedented” long, hot summer in 2018.

However, management has hopes of putting the fizz back in by launching three new version of its Rockstar energy drink, which is produced under licence, as well as improving recipes for its Rubicon juices.

Last month, the FTSE 250 group released an 'old and unimproved' version of Irn Bru in a limited edition 75cl glass bottle – producing as many as the population in Scotland, 4.4mln.

“At a retail sales price of £2, this has potential to contribute up to £4.4mln to AG Barr's net sales before the conclusion of Jan full years in 2020 assuming a 50% retailer take,” analysts at Liberum said in a note ahead of Tuesday's year-end update.

“It looks to us like a solid offering out of AG Barr, which should resonate strongly in the mind of the consumer.”

At the time of the profit warning, chief executive Roger White told reporters: “I’m not having another one if there’s anything I can do about it.” 

Some analysts, such as those at Barclays, reckon he may be forced to consume his words, forecasting a not very sweet drop of 26% in profits to £34.1mln.

Significant announcements on Tuesday January 28:

Finals: Crest Nicholson Holdings PLC (LON:CRST), McCarthy & Stone PLC (LON:MCS)

Interims: PZ Cussons PLC (LON:PZC), NWF Group plc (LON:NWF)

Trading announcements: AG Barr PLC (LON:BAG), DP Eurasia NV (LON:DPEU), Euromoney PLC (LON:ERM)), Greencore (LON:GNC), Saga PLC (LON:SAGA), UDG Healthcare PLC (LON:UDG)

Economic announcements: US consumer confidence

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