The return of Crest Nicholson to the stock exchange could mark the start of recovery – for both housebuilding and the wider industry
The prospect of stock market flotation has, during recession, become something of a distant oasis for private construction firms. Those companies, such as Turner & Townsend, which were bullishly talking about using a City listing to fuel growth back in the final days of the boom have found that the ongoing tough economic conditions have made it impossible – not to mention extremely unwise – to pursue such ambitions. Instead, those same chief executives have taken to making periodic statements to the effect that a listing is still on the cards at some point - simply in order, presumably, to remind clients and the sector that their ambitions for expansion are still alive.
So, for a market watching closely for any definite signs of improvement, it is hugely encouraging that Crest Nicholson is to return to the stock exchange next Monday after a six-year absence, in the first major initial public offering in any sector in 2013. Even more so is the news this week that its initial pricing of 220p a share, valuing the company at £553m, is at the higher end of expectations.
This suggests that there is a good appetite among investors for the company, which has enhanced the positive reaction of business analysts to the move.
For a market watching closely for definite signs of improvement, it is encouraging that crest is to return to the stock exchange
The flotation already represents a remarkable turnaround for Crest, which back in 2008 was forced into a rescue deal with its banks after struggling with a heavy debt burden, the result of a debt-funded buyout at the height of the boom.
Of course, the City comes with its own challenges. KPMG’s report earlier this month on the health of the contracting sector underlined the potential problems for listed companies under pressure to chase revenue over margin (the implications of this are explored in detail here). But crucially, Crest’s move shows the mid-sized housebuilder that the opportunity is there to fund sustainable growth – growth which, judging by its initial reaction, the City believes is a realistic possibility.
Coming after a slew of more positive results from the housing sector, with Bellway this week the latest company to report improved margins and sales, Crest’s flotation indicates that even if the tide has not fully turned for private housebuilding, it is well on its way – for the bigger firms, at least.
As the first sector to fall into recession, housebuilding was always going to be the first out - but there are a few more encouraging signs this week for the wider industry as well. Office of National Statistics’ figures out last Friday showed a slight rise of almost 1% in construction output in the final quarter of 2012 compared with the previous quarter, fuelled mainly by increases in private housing and infrastructure. Meanwhile, specialist contractors – those at the heart of the storm – this week reported tentative signs of improving conditions.
With the needle on the industry’s economic barometer regularly wavering between slight growth and further decline, the sector knows better than to overstate these signs. But after four years of battering, these are tangible indications of a more positive climate - and it is certainly worth the wider market taking note.
Sarah Richardson, editor