Persimmon looks healthy despite lockdown scars

Housebuilder returns to dividends, although Covid-19 will impact the full-year results.

A year of two halves has both helped and hindered housebuilder Persimmon (LSE:PSN), as it fought to recover from the economic effects of the pandemic.

The company today brought out a trading update. Inevitably, the disruption and delays from the initial Covid-19 lockdown will leave their mark on the full-year numbers in March.

The group has been focussed on picking up the slack in the second half of the year. To a large extent it has not only mitigated the impact but also engineered a healthy position going into the new year.

The pandemic effect has been seen already on total group revenues which have declined by almost 9%, and new home completions which are 14% lower than the corresponding period last year.

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In addition, the latest lockdown adds another potential headache depending on the state of the UK economy. If there is a spike in unemployment and a deterioration in consumer confidence, let alone the expiry of the stamp duty holiday, the housebuilders will be under pressure once more.

The full effects of Brexit will take some time to wash through, but could have implications for Persimmon’s supply chain.

Set against this difficult backdrop Persimmon has pulled all the levers in its control.

In the second half of the year, average weekly sales rose by 39%, driven both by the stamp duty holiday and some pent-up demand. The average selling price of homes has risen by 7%, with the forward sales position looking particularly healthy and 25% above the previous year’s level.

Its financial position also remains robust, with cash held increasing by 46% year-on-year to £1.2 billion, and up from £960 million at the third quarter stage. In addition, the group has not accessed any of the government support schemes, nor does it intend to do so, and an undrawn £300 million credit facility provides further insurance.

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Indeed, the housebuilder entered the Covid-19 crisis in far better shape than had been the case during the great financial crisis of 2008, having learned a painful lesson.

Persimmon’s general financial health has allowed the effective resumption of the dividend, with a yield of 4% looking good in the current interest rate environment. Indeed, there are hopes that a special dividend may even be announced in the full-year results in March.

For the moment, and for all its challenges, the sector is seeing the benefits of lower interest rates, a general housing shortage and political interest in keeping the industry buoyant.

Given the chequered environment, the share price has held up well, having risen by 1.8% over the last year – and by 80% since the March low – as compared to a decline of 11% for the wider FTSE 100.

Although its peer Barratt Developments is the preferred sector play, Persimmon is also extremely well regarded and the market consensus of the shares as a strong ‘buy’ is likely to remain intact for the time being.