ii view: housebuilder Persimmon flags industry-leading margins

Offering a dividend yield of over 8% and with forward sales of more than £1 billion. Buy, sell or hold?

Full-year trading update to 31 December

• New home completions of 14,551, up 7% on last year
• Revenue of £3.61 billion, up from £3.33 billion
• Dividend paid over the year of 235p per share, up from 110p in 2020

Guidance:

• Total forward sales of £1.62 billion (2019: £1.36 billion)

Chief executive Dean Finch said:

"Persimmon's performance has been excellent through the year, delivering high quality growth. Whilst the industry continues to face the ongoing operational and economic challenges as a consequence of the pandemic, particularly as the Omicron outbreak unfolded in the last six weeks of the year, the Group continues to manage these ongoing challenges comprehensively. The long term fundamentals of the UK housing market remain strong and I am confident of Persimmon's future success."

ii round-up:

UK housebuilder Persimmon (LSE:PSN) today reported an 8.4% increase in full year revenues to £3.61 billion year-over-year as both build completions and the average sale price rose.

The average selling price of £237,050 during 2021 compared to £230,534 in 2020, although the increase in build completions to 14,551 fell below management’s November estimate nearer to 14,965. 

Persimmon shares fell by around 2% in UK trading, having remained little changed over the last year. Shares for rivals Taylor Wimpey (LSE:TW.), Barratt Developments (LSE:BDEV) and Berkeley Group (LSE:BKG) are also little changed over that time while shares for smaller rivals Vistry Group (LSE:VTY) and Redrow (LSE:RDW) are both up by around a fifth. 

Persimmon operates from 31 regional offices throughout the UK. Its brands are Persimmon Homes itself, Charles Church and Westbury Partnerships. 

Management anticipates the group's industry-leading underlying operating margin for the full year will be around 28%, up from 27.6% in 2020.

The total dividend paid out over the year to the end of December came in at 235p per share, up from 110p in 2020, given a return of confidence across the industry following the resumption of building activity from UK pandemic lockdowns.

Forward sales going into the new financial year totalled £1.62 billion, down from £1.69 billion this time last year, although up 10% from 2019’s starting number. 

In tandem with the update, the York headquartered builder also announced the summer appointment of Jason Windsor as chief financial officer. He is currently CFO at Aviva (LSE:AV.). Full-year results to the end of December 2021 are scheduled for 2 March. 

ii view:

Persimmon is the largest housebuilder by value listed on the UK market. It has broad UK coverage, with low exposure to the south-east and London, although relatively high exposure to ‘Help to Buy.’ Chief executive Dean Finch took the helm late September 2020. Like many rivals, Persimmon has also been returning excess capital to shareholders over recent years, although returns were previously halted following uncertainty caused by the pandemic. 

For investors, build cost inflation is being battled. UK interest rates also look likely to rise as the Bank of England now grapples with elevated inflation. And a price to net asset value ratio of 2.4 times is comfortably above rivals such as Barratts and Taylor Wimpey at under two times, suggesting the shares are not obviously cheap. 

On the upside, demand for new houses remains robust, and cost inflation is being countered by higher selling prices and prior moves to manufacture its own raw materials. Land buying opportunities are also still being found, and recent government changes to curtail house buyer assistance have to date not hindered the industry. In all, and with the shares sat on an historic and estimated future dividend yield of over 8%, the shares should remain of firm interest to income investors. 

Positives

• Cash held of £1.25 billion
• Attractive dividend payment (not guaranteed)

Negatives

• Economic outlook uncertainty
• Previously halt dividends under the pandemic

The average rating of stock market analysts:

Buy