Persimmon plc (PSN) Ordinary 10p

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Persimmon’s full-year revenue rose 16% to £3.2bn, driven by higher volumes as completions were up 7% to 10,664 new homes. Improving sales rates and average prices helped the order book climb 27% to £1.15bn.

Underlying pre-tax profits grew 10% to £395m, ahead of market expectations. This was helped by the revenue uplift and a tight grip on costs.

Free cash flow improved from an outflow of £165mn to an inflow of £57mn, due to the increase in profitability. The net cash position fell from £407mn to £244mn at year-end.

A final dividend of 40p per share takes the full-year total to 60p, in line with the prior year.

In 2025, completions are expected to rise to the 11,000-11,500 range. The group is targeting “further growth” in profits and is comfortable with current market forecasts, which point to pre-tax profit growth of around 13.5% to £432mn.

The shares rose 2.9% in early trading.

Our view

Persimmon’s full-year results were largely as expected, except for better-than-expected profit growth. The group looks in relatively good shape and further improvements are expected in 2025.

Sales rates rebounded sharply in 2024 and average selling prices also ticked higher thanks to much-improved buyer demand. Affordability issues remain something we’re watching closely, but we’re encouraged by the fact that the order book is growing at pace, improving visibility over future revenues.

This positive sales momentum is feeding down to the bottom line, helping full-year pre-tax profits return to growth after two years of declines. Given Persimmon’s houses are typically priced more than 20% below the newbuild national average, sales tend to be more resilient in times of uncertainty.

Growing revenues should be enough to offset low single-digit build cost inflation this year and help improve profitability. The in-house materials businesses, which we see as a key differentiator, should help on this front too. They give Persimmon quick and cheaper access to key materials. When Persimmon’s able to use its own bricks, tiles and timber, it saves around £5,500 per plot.

Significant pent-up demand for homes in the UK remains unchanged. The new government’s reforming the national planning framework to help remove some of the roadblocks for builders is starting to have a positive impact. But it’ll likely be a while before these changes really move the dial for housebuilders.

Persimmon’s robust land bank is a key strength, and it should be a major beneficiary of easier planning policies when they arrive. Given its low average selling prices and first-time-buyer bias, it would also be well-placed to benefit from any potential government support for homebuyers.

Keep in mind that while there are early signs of improvement, the outlook can change on a dime. There’s plenty of macroeconomic uncertainty, and forecasts of lower interest and mortgage rates this year may not come through as expected. That would hurt demand for Persimmon’s homes and put profit expectations under pressure.

The balance sheet is in decent shape, and improving cash flows should help to support the current 5.6% forward dividend yield. But remember, no shareholder returns are guaranteed.

With green shoots of a recovery emerging in the housing market, there’s scope for an improvement in sentiment towards the sector. Persimmon’s valuation remains well below the long-run average, providing an opportunity for potential long-term investors. But economic headwinds have the ability to delay activity in the sector from ramping back up into full flow.

Environmental, social and governance (ESG) risk

Most housebuilders are relatively low risk in terms of ESG, particularly for those in Europe. However, there are some environmental risks to consider, from direct emissions to the impact of their buildings on the local ecology. The quality and safety of their buildings is also a key risk.

According to Sustainalytics, Persimmon’s management of ESG risk is strong.

The group collects and discloses scope 1, 2, and 3 emissions and has strong emission reduction plans in place. It has also committed to its homes being net zero carbon in use by 2030. However, there’s currently limited disclosure on what percentage of materials are recycled. Disclosures around product and service safety is also lacking.

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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