ii view: Persimmon reopens for business

Build quality issues and then Covid-19. Now management is eager to get back to work.

Covid-19 update 

• Sales offices reopening
• 65% of production capacity restored

Chief executive Dave Jenkinson said:

"We support the Government's view that the housing sector has a key role to play in the UK's economic recovery. The urgent need for new homes has not been diminished by Covid-19 and the new measures announced by the Government will re-open the housing market and allow people to get moving again. 

“Our sales colleagues can now begin to return to site but staff and customer safety remains our first priority and we have put in place new protocols and training procedures to enable them to restart operations safely.”

ii round-up:

Following on from the Government’s recent update, housebuilder Persimmon (LSE:PSN) is reopening all of its sales offices on sites across England as of tomorrow. 

House construction, having ceased in late March, recommenced on 27 April. As of early May, 65% of production capacity had been restored, aided by its earlier decision to retain staff on the payroll and not furlough them. Business in Scotland remains closed pending government guidance. 

The group’s off-site manufacturing facilities have also helped it get back up and running, providing continuity in the supply of key materials.

Having made a strong start to the year before Covid-19, 1,351 gross private reservations were made in the 10 weeks to 10 May, with 1,300 legal completions. Customer cancellations have stayed within historic levels. 

Persimmon shares fell by more than 4% in early UK trading and are down over 20% year-to-date, halving 2019’s near 40% gain. But its performance is better than the near 40% falls suffered by rivals Barratt Developments (LSE:BDEV) and Bellway (LSE:BWY) over 2020. 

Persimmon had £600 million of cash as of late April and land creditors of £163 million to the year-end, along with a £300 million revolving credit facility. Forward sales had hit £2.7 billion compared with £2.9 billion back in 2019. 

The company previously scrapped a surplus capital payment of 125p per share and postponed the 2019 final dividend of 110p per share due in early July. There will be a reassessment in the second half of the year. 

ii view:

Headquartered in York, Persimmon operates from 31 regional offices. Its brand names are Persimmon Homes, Charles Church and Westbury Partnerships. It employs around 5,000 personnel and sold 15,855 new homes in 2019, 594 less than in 2018.

It has over the last year been plagued by build quality and customer service issues. Fixing those quality issues in late 2019 lowered completion volumes. Now Covid-19 has left it without any build activity at all. 

For investors, build quality issues left the company's share price trailing rivals over 2019. Barratt shares rose by over 60%, Persimmon rose by just under 40%. Now Covid-19 and the conservation of cash has left it without the key attraction of shareholder returns. But operations are now returning, with the Government lifting closures on estate agents and actively pushing a reopening of the housing market. Although life is unlikely to return to normal for some time, it appears that even Covid-19 will not be allowed to stand in the way of Persimmon and at least England’s housing market.  

Positives

• Restarting operations following Covid-19
• Focused on regions outside of London and the South East 

Negatives

• Shareholder returns suspended under Covid-19
• Build quality and customer service issues have hit performance

The average rating of stock market analysts:

Strong buy