Persimmon shares rise despite profits slump

Shares in Persimmon rose 3% last week, despite the company revealing that profits had slumped by 65% for the half-year. Profit before tax fell to £151 million from £439.7 million in the same period last year, while revenues dipped to £1.2 billion from £1.7 billion in the first half of 2022. The housebuilder is suffering the effects of higher interest rates and wider uncertainty in the housing market.

“Against a backdrop of higher mortgage rates, the removal of Help to Buy and significant market uncertainty, Persimmon has delivered a robust sales rate excluding bulk sales whilst growing the private average selling price in our forward order book and also securing cost savings,” group chief executive Dean Finch told investors. “We are on track to deliver profit expectations for the year and are building a platform for future growth.”

Persimmon: private sales remain strong

However, private sales remain relatively strong and pricing resilient, says Finch, although decreased volumes have hit the company’s margins.

“Our private sales rate has remained broadly consistent throughout the period resulting in a private forward order book that is now 83% higher than it was at the beginning of the year, despite controlled use of sales incentives and limited recourse to investor deals,” he said. “Our pricing overall has remained resilient with continued positive momentum in the forward order book.

However, the reduced volumes in the first half of the year have negatively affected our operating margins as we predicted earlier in the year. As we look forward, we expect increasing completions to result in improving operating margins.”

New completions dropped to 4,249 in the first half – compared to 6,652 in the first half of 2022. Persimmon said this reflected the lower forward order book coming into the year following last year’s mini-Budget.

However, average private selling prices came in at £288,327, up 8% on last year as higher rates of larger homes were sold. The sales rate fell to 0.59 from 0.91 last year, while incentive rate levels also increased to 3.2% from 1.5% in the same period last year. Average selling prices rose 4% to £256,445 compared to the first half of 2022.

Persimmon reintroduces half-year dividend

Persimmon’s cash position remains healthy at £357 million after dividend payments, and the company has a revolving credit facility of £700 million. On another positive note, the housebuilder also reintroduced its half-year dividend payment.

The company says its current forward sales position stands at £1.6 billion – 30% down on the same period last year (2022: £2.2 billion), although full-year completions are forecast to be at least 9,000, at the top end of expectations. Forward private sales are also up 83% to £875.9 million (Jan 2023: £478.5 million).

Persimmon shares are down 39% over the year to 1129.5p but remained relatively highly rated against their peers. With further interest rate hikes on the horizon and the housing market continuing to look sluggish, there is no immediate incentive to buy.

Past performance is not a guide to future performance