Crest Nicholson Shares Potentially ‘Significantly Undervalued’

Crest Nicholson's (LON: CRST) turnaround plan under its new Chief Executive has prompted RBC Capital to upgrade the stock to Outperform. 

In a recent note, analysts at the bank highlighted a potential upside scenario of 420p per share by FY2029 if the company achieves its medium-term return on capital employed (ROCE) target of 13%.

RBC described Crest Nicholson as having had all the right components for success but “playing them in the wrong order.” 

However, with operational challenges now largely behind it, the analysts believe the company has a clear path to improving volumes, margins, and returns.

The note points to Crest's “mid-premium” repositioning strategy, which focuses on homes with larger rooms, higher ceilings, and superior specifications—a move that aligns it more closely with Redrow’s business model. 

“Rather than try to build all homes for all people, it is focused on those with more money who are able to afford some of the finer things in life,” RBC noted.

While the analysts acknowledge Crest Nicholson’s conservative ROCE target relative to some of its peers, they suggest “risks to the upside.”

“If Crest is on track to reach its medium term ROCE target of 13% the shares are, in our view, significantly undervalued,” stated the bank.

However, RBC flagged concerns about landbank margins and strategic land, stating that “the CMD did not allow us to kick the tires as much as we’d like.” 

The analysts believe either margin and return guidance is too low or embedded margins are not as strong as they appear.

To reflect these “known unknowns,” RBC’s price target is set at 230p (up from 180p), but the note implies that if execution is successful, a much higher valuation could be justified over the long term.