ii view: high yielder Persimmon battling economic headwinds

This FTSE 100 housebuilder is in positive mood, but the shares are down by more than 40% year-to-date. We assess prospects. 

First-half results to 30 June

• Revenue down 8% to £1.69 billion
• Pre-tax profit down 8% to £440 million
• Cash held down 41% to £0.78 billion
• Returned £750 million to shareholders by July 2022

Guidance:

• Expects a 10% increase in active outlets over the full year
• Continues to expect between 14,500 to 15,000 legal completions this full year

Chief executive Dean Finch said:

"Persimmon continues to perform well. We are making important progress in quality, service, land investment opportunities and efficiencies to build an even stronger business, while continuing to deliver the strong financial returns that Persimmon is renowned for.”

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 ii round-up:

Persimmon (LSE:PSN) is headquartered in York and operates from 31 regional offices throughout the UK. 

Its operates brand names Persimmon Homes, Charles Church and Westbury Partnerships. It employs over 5,000 people and completed 14,551 new homes in 2021, up from 13.575 in 2020.

For a round-up of these latest results, announced on 17 August, please click here. 

ii view:

Founded in 1972, the York headquartered housebuilder is today a constituent of the FTSE 100 index. In support of its housebuilding business, it also operates its own roof timber frame making business called Space4, along with both brick and roofing tile manufacturing operations.  

For investors, a highly uncertain economic outlook must be considered, plus rising interest rates, consumer incomes squeezed by high energy prices and a cost-of-living crisis and stretched government finances. Support schemes such as ‘Help-to-buy’ are also being withdrawn. Business costs generally are rising, planning delays remain a challenge for the industry, while average private sales rates for the first seven weeks of the second half fell by 11% compared to the same period in 2021, hindered by tough comparatives. 

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More favourably, rises in material costs are being countered by increased selling prices. Supply chain challenges are being aided by Persimmon’s own in-house manufacturing operations, while the company's average private selling price of £267,325 is around 20% below the UK's national average, suggesting customer value. 

On balance, and while caution remains highly sensible, an estimated future dividend yield of over 10% might attract shareholders with a long-term view. They must also be prepared to ride out any storm caused by recession and accept the risk of dividend cuts if business deteriorates.

Positives

• Forward sales of £2.32 billion
• Attractive dividend payment (not guaranteed)

Negatives

• Uncertain economic outlook
• Previously halt dividends under the pandemic

The average rating of stock market analysts:

Buy