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Persimmon - Progress continues

George Salmon | 27 April 2017 | A A A
Persimmon - Progress continues

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Persimmon plc Ordinary 10p

Sell: 2,765.00 | Buy: 2,769.00 | Change -22.00 (-0.80%)
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A trading update released ahead of the group's AGM shows continued improvements in both forward sales and average selling prices. The shares were little moved on the news.

Our View

The Brexit vote added a dollop of uncertainty to the UK's housing market, but even in the face of gloomy data, the housebuilders have continued to report strong sales and high levels of interest. The fact that Persimmon is expanding its capital returns plan is further evidence of its confidence.

There are many reasons why the market is proving resilient. Brits still want to own their own homes, and the UK faces a major housing shortage. After the vote, the Bank of England moved quickly and decisively to cut interest rates, and it looks as though, barring a full-blown sterling crisis, rates will stay low for the foreseeable future. If this proves to be the case, mortgage affordability will remain high, and Persimmon could continue to bear fruit.

The group has also cited the benefits of the government's Help to Buy incentives for first time buyers. Many of the schemes are designed to encourage the purchase of new-builds, which are accounting for an increasing number of transactions, relative to existing homes. That is providing the industry with a cushion the rest of the housing market lacks.

However, it would be foolish to think that the sector is not vulnerable to a fall at some point. The conditions that cause housing crashes can turn up at short notice, and have in the past had pretty nasty consequences for shares in the sector.

Fortunately, Persimmon has a stronger balance sheet than at the time of the last crisis. Its large land bank enables it to adopt a cautious approach to acquiring new plots if need be, which should mean cash generation remains strong. It's also worth adding that the group has limited exposure to the London and South East markets, which some analysts have predicted could be at most risk.

Persimmon plans to return 110p per share per year out to 2021. This means the shares offer a prospective yield of 5.4%.

Current trading

Total forward sales revenue is £2.56 billion, 11% higher than last year, and the group's average selling price has increased 4.1% to £229,500.

As expected, the weekly private sales rate per site since February's Final Results were released is 12% up compared to the equivalent period in 2016, with visitor numbers to the group's sites up 6%.

So far in 2017, the group has opened 67 new sales outlets across the UK. Persimmon says the lower land costs associated with these sites will continue to support margin progression.

Looking ahead, the Board remains confident of the future prospects of the group.

Unless otherwise stated, all estimated figures, including prospective dividend yields, are taken from a consensus of analyst forecasts compiled by Thomson Reuters. These estimates should not be taken as a reliable indicator of future performance.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.