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Persimmon shares down 8% as sales fall

Shares in the housebuilder have fallen 40% this year

Source: Bloomberg

Shares in Persimmon fell 8% on Wednesday after the building firm posted lower revenues and profits for the half-year. First-half revenues at the housebuilder slipped 8% to £1.69 billion from £1.84 billion, while pre-tax profits fell to £439 million (from £480 million in 2021).

Persimmon’s chief executive Dean Finch blamed strong comparative figures from last year and cost price inflation. New home completions dipped to 6,652 from 7,406 in the same period the previous year. However, selling prices were higher at £245,597 (compared to £236,199 in the first-half of 2021).

Strong order book and earnings guidance intact

Meanwhile, the housebuilder is 90% forward sold for the coming year – with forward sales of 10,542 homes worth £2.32 billion. The average private sales rate was 1% ahead of last year. Sales price inflation is also currently mopping up increased cost price inflation. However, average private sales rates for the first seven weeks of the second-half are down 11% year-on-year against strong comparative figures. The housing market tends to drop off in the summer months due to the school holidays.

“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,” Finch told investors. “Demand for our attractively priced, high quality homes has remained robust, with our average private sales rates for the period being c.1% ahead year on year. Our customer satisfaction score is currently 92%.”

Finch added that company has some “exciting new sites coming into the business at industry-leading margins, with a land replacement rate for the period of over 130%,” while expanded production in Persimmon’s own brick, tile and timber frame factories, is boosting its “supply resilience and cost efficiency.”

The company also returned £750 million to shareholders this year via a share buyback scheme.

Recession could cast a shadow over the housing market

Finch said that he reiterated the company’s year-end volume expectations of “delivering 14,500 to 15,000 units with forecast full year profit in line with… expectations” and that “while risks remain,” he expects to open around 70 new outlets over the second-half of the year.

However, a big question remains over the future of the housing market with inflation at a 40-year high, rising interest rates and a possible UK recession looming. Analysts at Savills estate agents forecast a 1% fall in house prices in 2023, which could hit Persimmon hard. Meanwhile, other headwinds include the ongoing issue of building cladding and fire safety, following the Grenfell Tower tragedy, and the withdrawal of the government’s Help to Buy Scheme.

Persimmon shares are down 40% this year and could have a choppy year ahead. However, analysts at Liberum Capital currently have a price target of 2,630p and a buy rating on the shares. With a strong forward sales book, and the shares trading at five-year lows, at 1,741p, they are a long-term buy.

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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