Persimmon still moving in the right direction
TUESDAY brought half-year results from Persimmon, one of the UK’s biggest housebuilders.
Revenue rose 5 per cent to £1.8billion, as the company sold more houses at a slightly higher average selling price of £215,813. That revenue growth, combined with good cost control and more efficient house designs, helped build profits up 13 per cent to £518.2million.
Anyone who’s been following the fortunes of the UK housing market might be a bit confused by such a robust performance.
That’s because the mood music has been generally pretty downbeat. Price growth has been moderating, and estate agents are struggling as transactions slow. But the builders march on and that’s because Persimmon and others are getting a helping hand from the Government.
The Help to Buy scheme is designed to encourage the purchase of new builds, while waiving stamp duty for first-time buyers has benefited a group of buyers that make up around a third of a builders’ customers.
Its lack of exposure to the underpressure London market has put more wind in Persimmon’s sails.
However, as the financial crisis showed, conditions in the housing sector can change quickly. Back then a huge debt pile exaggerated underlying problems and led the company to an uncomfortable brush with extinction.
Persimmon has a deep land bank for future development and has built up a net cash position that stretches into the hundreds of millions. That makes the dividend look safe in the short term. With the yield up to over 9 per cent, income seeking investors will surely be interested.
But after a spell of near perfect conditions, there are signs things might be starting to change. Low interest rates have started to rise and look like they’ll increase from here, while support from Help to Buy won’t last forever.
If worries around changing conditions turn out to be overdone, Persimmon would be a bargain. But we feel anyone buying the shares now should be as much aware of the potential downside as the upside of that huge dividend yield. “This article is designed for investors who make their own decisions without advice, if unsure whether an investment is right for you, you should seek advice. Shares can rise and fall in value so you could get back less than you invest.”