Cairn Homes shares drop by 4% as costs cut earnings

By Eamon Quinn

Shares in Cairn Homes dropped 4% despite the Dublin housebuilder issuing an upbeat trading update saying it had a “very strong outcome” for 2017.

Cairn shares, which have risen about 18% since its Dublin stock market debut last summer, fell in the latest session as its earnings fell short of some analysts’ expectations.

Valued at just over €1.47bn, the shares also have a separate listing in London.

With rival Glenveagh Properties, it is one of only two stock market-listed Irish companies hoping to tap the huge demand of new homes in a market with little supply.

Glenveagh shares, which were unchanged yesterday, have also risen since their Dublin market debut late last year, by over 4%.

It is valued at almost €794m.

Davy said Cairn’s estimate in its update for earnings before interest, tax, depreciation, and amortisation for 2017 of between €14.5m to €15m were “well behind” the broker’s earnings forecast of €17.4m.

The reason was that the builder had higher than expected costs, even as it forecast a sharp increase in house sales and revenues.

“The unexpected increase in operating costs in the first half casts a bit of a shadow on what has otherwise been a very successful year for Cairn Homes,” said analyst Colin Sheridan.

However, the higher costs were “likely due to a higher mix from apartment building,” he said.

Davy has an “outperform” recommendation on the shares.

The housebuilder, which almost exclusively focuses on building homes in Dublin, said it achieved an average pre-vat sales price of €314,000 on the units it sold in 2017, up from €295,000 in 2016. And the first half of the new financial year would be “underpinned” by forward-sales of 348 units at a pre-vat price of €386,000, it said.

Goodbody said it was keeping its buy recommendation.

“Given market demand, Cairn flags that further apartment commencements in prime city centre locations can be expected in 2018, whilst Cairn also notes it has a student apartment pipeline of 1,700 units at five locations near universities,” said analyst Eamonn Hughes.

“Overall, we take comfort for full year 2018 from the forward sales guidance,” he said.

Cairn chief executive Michael Stanley said: “Given the quality and historical cost of our land bank, our dual focus on competitively priced houses and premium apartments and our increasing operational capability, we continue to look forward with confidence.”

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