McCarthy & Stone sales slump as second wave hits

Sales at McCarthy & Stone have been hit in recent weeks by the second wave of covid infections and the national lockdown, the firm admitted today.

The listed retirement housebuilder, which is in the middle of being bought by US private equity giant Lone Star, said in a trading update for the year to the end of October that completions had slumped to just a third of their 2019 level. Current trading was “increasingly” being affected by “rising covid-19 infection rates and government lockdown measures”.

It said net reservations for the latest quarter, ending on 31 October, were just 22 per site per week, 40% below the same period last year.

Revenue for the full year will be just £197m, 73% down on the £725m reported last year.

While the firm said its full-year results would see a loss “in line with board expectations”, the update is in stark contrast to profit upgrades from mainstream housebuilders including Taylor Wimpey and Crest Nicholson in recent days.

Those upgrades follow months of reports of rising prices and a rebound in sales since lockdown restrictions on the housing market were eased in May, boosted further by the temporary stamp duty holiday introduced by chancellor Rishi Sunak in July.

McCarthy & Stone’s trading update put its bad news down to the fact its customer base, with an average age of 79, had been more cautious regarding the risk of coronavirus than the rest of the population, and therefore had been less likely to move house since lockdown measures were lifted.

The firm said that while it had seen “some benefit” in the market during late summer and early autumn driven by pent-up demand and the stamp duty holiday, “our markets remain affected by COVID-19”. It said sales had overall “remained subdued” because “the behaviour of our customer base, which has an average age at the time of purchase of 79, has been more cautious than the broader population due to the risks associated with COVID-19”

It added that the recently introduced lockdown measures had had an effect on net reservations in recent weeks, initially most pronounced in the Midlands and North, but it did not quantify how far they had fallen.

“The Board believes the retirement housing markets will continue to be affected by high infection rates and lockdown measures during the first half of FY21 and this will inform investment decisions and have a bearing on the timeframe for returning the business to profitability.”

The firm said it will report an underlying loss for the year, even prior to factoring in the impact of one-off covid related costs, priced at £63m in the firm’s half year accounts published in July.

Private equity group Lone Star launched an offer to buy the business for a cost of £630m late last month, a bid slightly below the firm’s net asset value. 

John Tonkiss, chief executive of McCarthy & Stone, said: “With national COVID-19 infection rates rising and lockdown measures in place, the retirement housing market is expected to remain difficult.

“As a result, the group will continue to cautiously and actively manage cash flow […]. It is against this backdrop that the Board believes the 115p cash offer from Lone Star Real Estate Fund represents fair value reflecting both the future opportunities and risks facing the business.”

Alastair Stewart, analyst at Progressive Research, said: “There had been some grumbling from some shareholders about the offer, at a discount to net assets. But the trading statistics and financial position revealed in today’s update indicates things will get worse before they get better.”