Persimmon’s solid foundations for growth
PERSIMMON was founded in 1972 and is now one of the UK’s leading housebuilders, owning approximately 17,700 acres of land and operating through a network of 28 regional offices.
Market conditions through the first half of this year were positive for the group, and while economic uncertainty around Britain’s exit from the EU will persist for some time, Persimmon says that current trading is robust.
Since July 1, the private sales rate has been 17 per cent ahead of the same period last year, cancellations remain low and the number of visitors to Persimmon sites are around 20 per cent ahead year-on-year. In the first half of the year, profit before tax increased 29 per cent to £352.3million, with underlying operating margins rising to 23.8 per cent. Persimmon’s revenue increased by 12 per cent to £1.49billion, with completion volumes up 6 per cent, to 7,238 new homes. The group’s average selling price has also risen by 6 per cent, to £205,762.
Since falling sharply in the immediate aftermath of the Brexit vote, amid concerns over the UK economy and a potential housing slowdown, sentiment towards the housebuilders has improved. The Bank of England moved quickly and decisively to cut interest rates, and it looks as though, barring a full-blown sterling crisis, rates will stay lower for even longer.
Other factors are also pulling in the right direction for Persimmon. Brits still want to own homes, Government schemes such as help-to-buy are likely to remain in place, and the UK still faces a major housing shortage.
Since the last crisis, Persimmon has strengthened its balance sheet and has limited exposure to the London and South East markets, which some analysts have predicted could be at most risk. Persimmon expects uncertainty around the UK economy to linger for some time. It is going to be playing it safe on acquiring new land, and will instead look to develop plots from the existing land bank. This should aid cash generation and help the group honour its plan to return 110p per share per year out to June 2021, which means that the shares offer a current yield of over 6 per cent.