ii view: Persimmon rallies after late year surprise

Full-year trading update to 31 December

• Home completions down 33% year-over-year to 9,922
• Average net private sales of 0.58 per outlet per week, down from 0.69 in 2022
• Current forward sales up 2% at £1.06 billion
• Average selling price up 3% to £255,750

Chief executive Dean Finch said:

"Persimmon performed well in challenging market conditions, delivering completions ahead of expectations in 2023 alongside enhanced quality metrics of our already five-star homes. Persimmon's offering is resonating well with customers with sales rates relatively robust throughout the year. We have successfully balanced our need to control costs, whilst investing in the business to position it for sustainable growth when conditions improve.”

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ii round-up:

Housebuilder Persimmon (LSE:PSN) today detailed annual 2023 build completions of 9,922, down a third from 2022 but better than its November estimate of 9,500. 

The average selling price rose by 3% to £255,750, with required buyer incentives doubling to 4% from 2% in 2022, forcing City analysts to raise estimates for adjusted annual profit in 2023 by around 4% to £355 million.  

Shares in the FTSE 250 company rose by over 6% having come into this latest news up by close to a tenth over the last year. That’s below gains of more than a quarter for rivals Barratt Developments (LSE:BDEV) and Taylor Wimpey (LSE:TW.), although better than a near 1% loss for the FTSE 250 index itself over that time. All housebuilders did well during the stock market rally that began late October. 

Persimmon operates across 30 UK regional offices and three offsite manufacturing facilities where it makes items ranging from timber frames and roof systems to bricks and tiles.  

Average net private sales for the full year came in at 0.58 per outlet per week, down from 2022’s 0.69, although up in the final quarter of 2023 at 0.41 (Q4 2022: 0.28). However, that was against easy comparatives given Liz Truss’s disastrous autumn 2022 budget. 

Accompanying management comments underlined a sustained pick-up in interest over 2023 from the lows of late 2022, although market conditions are expected to remain highly uncertain during 2024, particularly for first-time buyers and with an election likely.

Current forward sales stood at £1.06 billion at the year-end, up 2% from late 2022, with group cash held of £420 million, down from £860 million this time last year. 

Full-year results are scheduled for 12 March. 

ii view:

Founded in 1972, sales for the York headquartered housebuilder are today made via the Persimmon Homes brand itself, along with both Charles Church and Westbury Partnerships. The FTSE 250 company is more exposed to generally more affordable sales and in particular first-time buyers. Homes sold under its Persimmon brand sell at an average of 25% below the national average new home selling price based on HM Land Registry data. 

For investors, customer affordability constraints persist, with mortgage rates comfortably up from their previous lows. Government-backed assistance schemes such as ‘help-to-buy’ have also ended. Group cash levels have reduced, planning challenges across the UK generally persist, while the environmental impact of building new homes continues to warrant consideration.  

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To the upside, hopes are that UK mortgage rates have peaked, with some providers already reducing borrowing costs. Build cost inflation looks to have eased, too, given both reduced demand for materials and an easing of prior global supply issues. Potential for new industry assistance under a newly elected government should not be forgotten either, while an estimated price-to-net asset value of around 1.3 times is comfortably below the three-year average, suggesting better value.   

On balance, and despite clear ongoing risks, there is hope that housebuilders will benefit when the economic cycle turns. A forecast dividend yield in the region of 4.5% may also be sufficient to keep existing income investors sitting tight. 

Positives

• Broadly stable selling prices
• Mortgage rates may have peaked

Negatives

• Uncertain economic outlook
• Previously reduced shareholder returns

The average rating of stock market analysts:

Hold