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Persimmon - sales rates edge higher, but challenges remain

Persimmon's completions declined by 42% to 1,136 homes, reflecting a lower order book at the beginning of the period.

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Persimmon's completions declined by 42% to 1,136 homes, reflecting a lower order book at the beginning of the period.

In the first quarter, net private sales rates have roughly doubled to 0.62 when compared to the final quarter of 2022, but this remains some way below the 0.98 they stood at 12 months ago. Despite this, overall pricing remained firm in the first quarter, with the private average selling price on completions up 10% year-on-year.

Persimmon's forward sales position fell 30% year-on-year to £1.7bn, but has moved forward from the £1.0bn level at the beginning of 2023.

Land holdings also came in 6% lower at around 86,400 plots, and the cash position fell 18% to £353m.

Build cost inflation remains at 8-9%, with little sign of easing in the short-term. Incentives on new home reservations are running at around 3%, as the group continues to offer part exchanges and 10-month mortgage free offers.

If current momentum continues, Persimmon expects full year completions to be towards the top end of its 8,000-9,000 guidance.

The shares rose 3.6% following the announcement.

View the latest Persimmon share price and how to deal

Our view

Despite the difficult trading backdrop, Persimmon's benefitted from the usual seasonal uplift as well as from lUK mortgage rates pulling back from recent highs, which has lifted spirits among investors. While it's encouraging to see that sales rates have picked up in the first quarter of 2023, they still remain some way below the levels seen 12 months ago. That's led Persimmon to pull back on investing in new land - something we expect to continue across the year as the group sharpens its focus on preserving cash.

On the topic of preserving cash, Persimmon slashed its 2022 dividend by 74%, down to 60p. The dividend is expected to remain rebased at this level, with a view to growing it over time. As ever there are no guarantees. With that in mind we see the prospective yield of 5.1% as slightly challenging. While unfortunate, the reduced payout level may be a necessary evil. Especially as the group grapples against build cost inflation running hot at 8-9%, which is showing little sign of easing in the near term.

Analyst consensus suggests a 38% potential fall in revenues this year. And factoring in the cocktail of headwinds, operating margins are expected to fall from 26.4% to 17.0%. That's not wonderful, but housebuilders are cyclical businesses that go through periods of ups and downs. And as Persimmon's houses are typically cheaper than the UK average, its selling prices may prove slightly more resilient than some competitors.

Persimmon has a strong balance sheet with industry-leading margins, which should help weather the coming change in cycle. There are also the in-house materials businesses, which could offer a cushion to inflating prices where materials are concerned. It's pleasing to hear production at these sites is getting a push to relieve as many of those cost pressures as possible.

We also see reasons to remain positive on the long-term fundamentals of the UK housing market. The nation faces a housing shortage, all major political parties are committed to further housebuilding, and mortgage markets look to be stabilising to some degree. House price rises might stagnate in the years ahead, but Persimmon has the land to hike volumes when the market does turn.

Full-year completions are expected to be around 40% lower than 2022 levels, and over the near term, we think there's scope for news to get worse before it gets better. But some of that's already priced into the valuation which has come under significant pressure over the last year - now well below the long-term average. The real question is, how well can Persimmon weather the current storm. For now, the group looks to be in as robust position as it could be.

Persimmon key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. 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 disclosure for more information.

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Written by
Aarin Chiekrie
Aarin Chiekrie
Equity Analyst

Aarin is a member of the Equity Research team. Alongside our other analysts, he provides regular research and analysis on individual companies and wider sectors. Having a keen interest in global economics, he knows how macro-events can impact individual companies.

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Article history
Published: 26th April 2023