We don’t support this browser anymore.
This means our website may not look and work as you would expect. Read more about browsers and how to update them here.

Skip to main content
  • Register
  • Help
  • Contact us

Persimmon - still moving in the right direction, but slower

George Salmon | 21 August 2018 | A A A
Persimmon - still moving in the right direction, but slower

No recommendation

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: 2,757.00 | Buy: 2,758.00 | Change -48.00 (-1.71%)
Chart View factsheet

Market closed | Prices delayed by at least 15 minutes | Switch to live prices

A trading update in July lifted the lid on most of the headline numbers, so there isn't too much in the way of 'new' news in Persimmon's half year results.

However, the group confirmed margins have improved by 2.1 percentage points, while customer demand remains robust.

The shares moved slightly higher on the news.

View the latest share price and how to deal

Our view

A few warning signs are flashing in the housing market, but Persimmon has been bucking the trend by reporting strong sales and high levels of interest.

We think there's a two reasons for this apparent anomaly.

The government's 'Help to Buy' incentives are providing a tailwind. Many of the schemes are designed to encourage the purchase of new builds, which make up a growing proportion of overall transactions. That's providing the industry with a cushion the rest of the housing market lacks.

Secondly, Persimmon has very little exposure to the premium London and the south east markets, where we're seeing prices under the most pressure.

Add in the group's enviable operational record - margins are close to 30% - and it's easy to see why the shares trade on 2.4 times book value, a premium to its housing peers.

However, as the last crisis showed, conditions in the housing sector can change quickly.

Perhaps with the memory of how its debt laden balance sheet exacerbated its troubles back in 2008/9, management have ensured the foundations are stronger this time. Persimmon has a deep land bank for future development and has built up a net cash position that stretches into the hundreds of millions.

Rather than hoard all that cash, the group is steadily returning chunks back to shareholders through special dividends. We think this policy, rather than stock repurchases or M&A, is the right call. The extra dividends also mean the market is pricing the shares to yield almost 10%.

These payments look secure in the short term, but with support from Help to Buy and low interest rates likely to fade away at some point, Persimmon's specials won't last forever. There's also the risks brought by several big Brexit unknowns.

That leaves us thinking that while it'd be foolish to try and predict the moment the housing market shifts, it's easy to see how things could get worse rather than better from here.

Register for updates on Persimmon

Half year results details

As expected, half year revenue rose 5% to £1.8bn, driven by low to mid-single digit percentage increases in completions and selling prices. Persimmon sold 8,072 new homes at an average price of £215,813.

The roll-out of a new house type has improved build efficiency, which, together with good cost control, helped underlying operating margin rising from 27.6% to 29.7%. In turn, this saw operating profits jump 13% to £518.2m.

Persimmon says customer activity through the quieter summer weeks has been encouraging and pricing has remained firm. The group has 6,528 new homes sold forward into the private sale market, at an average selling price of £235,800. The average weekly private sales rate per site so far this year is 0.76, slightly down on last year, but in line with expectations.

During the period, £343m was spent on acquiring 11,072 new plots across 45 sites, just under 30% of which were converted from the group's strategic land bank. Persimmon now has 101,445 plots in its consented land bank, of which around half have detailed planning consent.

There's no change to existing shareholder returns plans. The group still expects to pay a special dividend of 125p per share in early April 2019, with the next regular dividend of 110p scheduled for early July 2019.

Find out more about Persimmon shares including how to invest

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.