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Crest Nicholson and Bellway tie-up shows ‘logic’ say investors

Analysts at Peel Hunt have estimated that a Bellway-Crest merger could generate savings of £25-30m due to enhanced buying power.
Analysts at Peel Hunt have estimated that a Bellway-Crest merger could generate savings of £25-30m due to enhanced buying power.

Major shareholders in Crest Nicholson are urging the housebuilder’s board to consider a merger with larger rival Bellway as consolidation sweeps through the UK’s homebuilding sector.

FTSE 250 firm Bellway confirmed it had made two all-share offers for Crest last Thursday, the latest valuing the company at £667m, or 253p per share, representing a 17 per cent premium to its closing price that day. Crest rejected the offer, claiming it “significantly undervalued” the company.

The bid closely followed Crest’s fourth profit warning since August, forecasting an underlying pre-tax profit of £22m to £29m for the year, far south of analyst expectations of £39m.

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The stock tumbled 11 per cent after it said operating profit slid 71.9 per cent on last year to £6.2m, while revenue over the six months to April was down 8.9 per cent to £257m.

Analysts at Peel Hunt have estimated that a Bellway-Crest merger could generate savings of £25-30m due to enhanced buying power. They also speculated that a counter-bid could emerge from Persimmon or a private equity-backed housebuilder.

Andy Brough, head of the pan-European small and mid-cap team at Schroders, which holds three per cent stakes in both Crest and Bellway, said the firm supports the approach from Bellway.

Wes McCoy, UK value equity fund manager at Abrdn, which also holds stakes in both companies, added that there is “logic” to a tie-up between Crest and Bellway, “but the bid is not at an appropriate price”. Bellway has until July 11 to decide whether to table a new formal offer.

A third top Bellway shareholder told The Sunday Times they “can see the rationale” for the deal because of their different brands.

This push for consolidation comes as the UK housebuilding industry faces weak demand. Any tie-up would mark the latest significant deal in the sector, following Barratt’s £2.5bn agreement to buy rival Redrow earlier this year. Legal & General is also selling Cala Group, one of the UK’s largest housebuilding firms.

Housebuilders are consolidating to expand their land banks ahead of a potential market upturn, which could happen once mortgage rates stabilise. The Labour party has pledged to reform the planning system to build 1.5m new homes in the next parliament.

City A.M. has approached Crest for comment.