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Persimmon - sales rates fall but pricing holds firm

Persimmon delivered 1,439 homes in the third quarter, down from 2,270 last year.

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Persimmon delivered 1,439 homes in the third quarter, down from 2,270 last year.

Third-quarter average private sales rates fell from 0.63 to 0.48, but have improved since the start of October. Prices rose 2% to £296,822, supported by an increase in the use of incentives.

The group remains fully sold for 2023, with the order book rising from £1.4bn to £1.6bn since the half-year mark.

Persimmon achieved planning on around 3,400 plots across 19 sites in the third quarter and as a result, expects to open around 30 new selling outlets in Spring 2024.

Build cost inflation remains more stubborn than the group had anticipated, and is now expected to be between 8-9% for the full year. A hiring freeze remains in place which should see the group's headcount fall by around 700 in 2023.

Full-year completions are now expected to be around 9,500, compared to previous guidance of at least 9,000. Cash balances are expected to be in the £300-500m range.

The shares rose 1.6% following the announcement.

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Our view

Despite the difficult trading backdrop, Persimmon's reiterated full-year guidance with the operating margin set to be similar to the first half's 14%. But weak demand continues to keep sales rates significantly lower than last year, despite an encouraging response from renewed marketing efforts.

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 that topic. The dividend was cut last year and is expected to remain rebased at its current level, which suggests around 60p in total for the full year. If that remains stable into next year too, that'd put the current forward yield at around 5.3%, a little lower than markets are currently anticipating. Of course, no dividends are ever guaranteed.

Market forecasts suggest a 37% fall in revenues this year. And factoring in the cocktail of headwinds, operating margins are expected to fall from 26% to 14%. 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 margins towards the top end of its peer group, which should help weather the coming change in cycle. There are also the in-house materials businesses, which we see as a key differentiator. This vertical integration gives quick and cheaper access to key materials. For example, 55% of the bricks used are sourced in house, giving a £2,000 saving per plot. That's a key advantage when inflation's running hot.

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.

Given the pressures, it's not surprising to see the valuation below its longer-term average. Broadly speaking, it's trading at a premium to most of its peers, which we see as a reflection of underlying strengths. 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: 7th November 2023