Profits plunge at Persimmon
PERSIMMON’S profits plunged last year due to high interest rates and the squeeze on household incomes.
The FTSE 100 housebuilder reported that its pre-tax profits had been slashed by more than half in 2023.
They tumbled to £352m from £731m in 2022 as the group was hit by weaker demand and rising construction costs.
While the average selling price of one of its homes rose to £255,752 during the year from £248,616, the number of properties built by Persimmon slowed sharply to 9,922 from 14,868.
Things were not expected to improve this year.
The group predicted interest rates would ‘remain at current levels’ and that uncertainty surrounding the General Election meant the housing market would remain ‘ subdued throughout 2024’.
As a result, the York-based company said it was preparing for ‘another challenging year’.
Shares dropped 3.7pc, or 50.5p, to 1324p yesterday.
Despite this, boss Dean Finch tried to strike a more upbeat note, saying the sector was still experiencing ‘significant pentup demand for homes’ as aspiring buyers put off purchases until interest rates were cut.
He also pointed to a projected rise in house construction with Persimmon expecting to finish between 10,000 and 10,500 properties in 2024. This is above last year’s level but still well below the nearly 15,000 delivered in 2022.
Despite the plunge in profit, the company maintained its dividend at 60p per share in a relief for investors. But some analysts warned this may be putting off the inevitable.
Russ Mould, investment director at AJ Bell, said the builder may have simply ‘kicked a difficult decision down the road’ and that maintaining its dividend was ‘ not the typical response from a company which has just seen its annual profits halve.’
The housing sector has been under increasing pressure in recent years after demand boomed during the pandemic, fuelled by a stamp duty cut and record low interest rates. But this has given way to higher borrowing costs and tighter household budgets as inflation surged.
The industry has also been hampered by the end of the Government’s Help to Buy scheme. This assisted firsttime buyers to buy newly built properties, as well as helping them navigate the much-criticised planning system.
Britain’s largest housebuilders are all grappling with the effects of the slowdown.
Last month, Taylor Wimpey posted a 43pc fall in profits for the whole of 2023 and Barratt recorded a 70pc plunge in the second half of last year.
But some pointed out that the UK’s chronic housing shortage could help lift profits again once interest rates began to fall.
‘The structural housing shortage in the UK isn’t going anywhere soon and, so long as that is the case, Persimmon should be one of the main beneficiaries,’ said John Moore, senior investment manager at RBC Brewin Dolphin.
‘Housing shortage isn’t going away’