After closing the vast majority of construction sites in response to the coronavirus outbreak, Persimmon will be conducting a phased reopening starting 27 April.
In the five weeks to 19 April, Persimmon made around 820 gross private reservations. Cancellation rates remain near historic lows.
The shares fell 1.1% in early trading.
Prior to the coronavirus pandemic, Persimmon's focus had been on addressing build quality and customer care problems. Now, as the country looks towards the end of the lockdowns, management will be devoting its energy to trying to get the business up and running again while preserving balance sheet strength.
We doubt many people will be rushing to move house this summer. Which means housebuilders could face the dual threat of falling volumes and falling prices, which has the potential to demolish profits and cash flow. Given reports from others in the industry, it looks like volumes have taken the brunt of the damage - and nothing in Persimmon's most recent update contradicts that. Hopefully sales rates will recover quickly, but it may be that prices have to fall to compensate.
Persimmon had around £610m in cash as of 25 March, £300m in available credit and has committed to pay £195m for land this year - giving it liquidity of about £715m in total. It's impossible to say how long the group can live off these reserves because we don't yet know how far management can reduce costs, or what the eventual hit to profits will be. It all depends on the nature of the economic recovery.
In the short term management will be doing everything they can to limit unnecessary cash expenses, including suspending the dividend. If the disruption is short lived investors may still see something this year, just later than expected. But if it's sustained the company may need the money to keep operating instead.
However, there are a few reasons to be cheerful. The long-term fundamentals of the UK housing market are still attractive. The nation faces a housing shortage, all major political parties are committed to further housebuilding, and mortgages are relatively affordable.
Prior to today's update, Persimmon shares changed hands for 2.1 times book value, above the long-term average of 1.8 times. However, since most of Persimmon's assets are tied to house prices, if prices head south asset values will have to be written down.
If Persimmon can come through the current crisis avoiding more permanent damage, then we think the long-term outlook is positive. But there are severe threats in the immediate future that investors should be mindful of.
Trading details (25/03/20)
In line with government requirements, Persimmon is closing all sales offices and reducing all construction work to the minimum required for health and safety.
Management has decided it would not be "prudent" to pay dividends during the crisis, although this policy will be reviewed as the situations clarifies.
Persimmon reported that 2020 had begun in a "robust" manner. However, the group is now expecting significant disruption, the duration of which is unknown.
Persimmon began the year with £844m in cash and £435m owed to land creditors, of which £268m is payable during 2020. As of 20 March, Persimmon had around £610m of cash and had deferred land commitments of £195m until year end. The group also has £300m of available credit.
While the board has stress tested the regular dividend, they describe the current circumstances as exceptional. The interim dividend of 125p per share due 2 April has been cancelled, and the final dividend of 110p per share due 6 July has been postponed.
Given the high degree of uncertainty, management is not providing guidance for this financial year. In accordance with government instructions, Persimmon is asking investors not to attend its AGM in person, instead an online webcast will be provided. The AGM is due to take place on 29 April, and further details will be provided on Persimmon's website.
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