RBC keeps Crest Nicholson at 'outperform' but warns of equity raise impact

(Sharecast News) - RBC Capital Markets has reiterated an 'outperform' rating on Crest Nicholson ahead of the housebuilder's results next week, but warned that its investment case could be clouded by a potential equity raise.

Back in April, Crest Nicholson said it was looking at a temporary banking covenant relaxation from its lending group due to lower-than-expected profits, though reports last month suggested that the banking syndicate had hired restructuring experts to advise them on negotiations.

In particular, there are concerns about the company's interest coverage ratio, with FY26 expected operating income of �10m compared with net interest costs of �15m, according to RBC.

"If Crest gets by without an equity raise, the shares are priced at a very attractive entry point, but if they do raise then the effective entry point is less clear," the broker said in a research note.

If the company does go ahead with an equity raise while its shares trade at 0.25 times book value, it would be "painful", according to RBC.

"We don't know how much value the lenders are trying to extract, but, in our view, unless the pain exceeds that of a dilutive raise, existing investors are best served by taking the short term debt financing pain. Should market conditions improve debt terms can be renegotiated, but once equity is raised, there is no turning back, and any subsequent share buybacks may come at a higher price than the equity raised (the opposite of Investment 1.01: Buy low sell high)."

The broker kept a 95p target price for the stock, which was down 0.6% at 69.4p by 1221 BST.