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Persimmon - Sales rates remain strong

George Salmon | 8 November 2017 | A A A
Persimmon - Sales rates remain strong

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No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Persimmon plc Ordinary 10p

Sell: 1,708.00 | Buy: 1,709.00 | Change -32.50 (-1.87%)
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Persimmon has updated the market on trading over the period 1 July to 7 November 2017.

Enquiries received from customers are in line with last year's elevated levels, despite sales outlet numbers being 10% lower this year. However the group says the market for both key trade skills and some materials remains tight.

Shares fell 3% following the announcement.

Our view

Brexit negotiations add some 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.

There are many reasons why the market is proving resilient. Brits still want to own their own homes, the UK faces a major housing shortage and interest rates are at historic lows, helping to keep mortgages affordable even as prices creep up.

Persimmon 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 isn't vulnerable. Conditions that cause housing crashes can turn up at short notice, and in the past have had pretty nasty consequences for shareholders.

,We recently saw a first interest rate rise in ten years. At present, we don't see much cause for rates to move more than Mark Carney's prediction of another couple of small ticks upward by November 2020. However, there's always the chance of a more rapid rise in rates. This scenario would put the squeeze on existing mortgage holders and could cool demand, causing prices to slide.

Fortunately, Persimmon has a stronger balance sheet than at the time of the last crisis, with a healthy net cash position. Its large land bank enables it to adopt a cautious approach to acquiring new plots if need be, keeping cash generation 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 4.7%. Persimmon trades on 2.7 times forward price to book value, well above its historic average.

Trading statement details

Persimmon's recent sales rate (per site) has been in line with the prior year. The group is now fully sold up for the current year, and has £909m of forward sales reserved beyond 2017, an increase of 10% on the same point last year.

So far this year, the group has opened 156 new sales outlets, and anticipates opening around 45 additional outlets during the remainder of the year.

During the period, a total of 5,526 new plots were acquired, at a cost of £147m. Of the new plots acquired, 48% have been converted from the strategic land portfolio.

The group looks forward to contributing to the Government's Housing White Paper consultations "to establish more effective planning processes which will allow the industry to increase the number of active outlets and overall output of new homes built."

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

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.