Persimmon builds on strong housing market
PERSIMMON, one of the UK’s big four housebuilders, has been benefiting from a booming housing market over the last year or so.
House prices are up and a lack of supply across the country means builders are reaping the rewards.
Forward sales, an indicator of demand, were down a fraction on last year. But that means the end of the stamp duty holiday and the new phase of the Help To Buy scheme don’t seem to be having a major impact.
So the group’s pressing on with new outlet openings and buying up more land to take full advantage of the hot market.
It forked out £314million on new land opportunities in the first quarter. Industry-leading gross profit margins of around 30 per cent are one of the key attractions and despite rising costs it’s able to maintain those, thanks to a range of in-house material businesses.
The other margin-booster is the way it buys land. Investing in plots that haven’t yet got planning permission provides cheaper access to new sites.
Once built, the lower initial costs mean there’s more profit to go around.
Persimmon has signed the Government’s fire safety pledge, which looks to address cladding issues. The £75million previously set aside for works was adequate, which should largely put the issue to bed.
We should also mention rising interest rates. They are still historically low, but if they rise faster than expected, it could take some of the heat out of the market as mortgages become less affordable.
There’s also the cost-of-living crisis and when you factor both into account, there are some genuine concerns about how long buyers can keep shedding out more and more cash. But if prices can hold up in the medium term, there should be plenty of cash available to be returned to shareholders.
For anyone excited about the UK housing market, Persimmon is a strong name in the sector and the current valuation could make for an exciting entry point.
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.