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Riding the Crest of a housing boom

Residential property company Crest Nicholson put out an encouraging set of results for the year to the end of October, since when homes have continued to sell in the same volume and at prices that are beating expectations.

Crest's (CRST) shareholders agreed to the sale of its loss making construction division for £9.2 million earlier this month and the company is now focused on its residential developments, which includes the development of some commercial property.

Fears over the strength of the residential property market are rife but Crest's results suggest the worst of the worries, in its case at least, may be over done.

The company reported a 28.6% increase on turnover on continuing operations to £505.1 million and a 34% increase in profits on continuing developments to £66.3 million. Pre tax profit rose 25% during the year to £63 million and earnings per shares rose 26% to 38.8p.

The company boasted it had taken full advantage of last year's buoyant housing market to produce the bumper results.

During the year its volume of sales rose 23% to 1,899 units and the average selling price of units increased 21% to £255,100 mainly due to sales in more expensive areas.

Importantly, for those worried about an impending calamity in the housing market the signs since the year-end have been encouraging. All the same Crest recognises that genuine fears exist about a hard landing although it describes its own experience of reservations since the year end as 'excellent'.

The company has however reduced its exposure to the development of luxury central London flats due to concerns about that area of the market.

Crest finished the year with net assets per share 17% higher at 192p and the land bank increased to 10,760 plots worth £2.1 billion, a 9.5% increase in value. Crest reckons that land bank should last it about 5 years.

Net debt increased 28.6% to 131.8 million and the group has borrowing facilities available to it of £262.9 million.

The company will make a 6.5p final dividend payment which makes a total payment of 9.5p for the full year.

Crest's shares moved ahead 9p this morning to 204p.

Citywire Verdict:

Crest results should go towards stemming the worst of the fears about the current state of the UK housing market. However, there is still plenty of room for doubt about whether it will be a soft or hard landing.

Crest's comments about its own experience since its year end are encouraging and arguably with its shares valued at 5.3 times the earnings it achieved in the year to October and a dividend yielding 4.6% a substantial amount of fear is already priced in.

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