- Operating earnings down 65%
- Dividend kept at 60p per share
- Outlook still challenging
Leading housebuilder Persimmon (PSN) delivered a predictably downbeat set of full-year 2023 results showing earnings tumbling but still maintained its dividend in line with the previous year.
The shares dropped 3.8% to a three-month low of £13.22, making them the worst performer in the FTSE 100 on a day when the index was up around 1% and close to making new three-month highs.
MARGINS AND EARNINGS FALL SHARPLY
The firm gave a preview of its results in January, saying completions last year were down around 33% to 9,922 units but that it had seen ‘a sustained pick-up of interest’ as the year progressed and deliveries in the final quarter were ‘particularly strong’.
New housing revenue was down just over 31% at £2.54 billion, slightly below the £2.6 billion consensus, but the underlying margin on new homes dropped from 30.9% to 20.5% without including legacy provisions which amounted to £275 million in 2022.
Underlying operating profit slumped an even more eye-opening 65% to £354.5 million, representing a margin of sales of just 14% against almost double that figure in 2022.
Chief executive Dean Finch insisted while the short-term outlook was uncertain, the ‘significant pent-up demand for homes remains unchanged’.
‘During the year we have continued to take further steps to strengthen the business and we are well placed to meet this demand’, said Finch, adding the business was well-placed to ‘maintain industry-leading financial returns as markets recover, supported by our vertically integrated business model, strategic land buying and disciplined approach to cost control’.
Notably, the firm’s cash position more than halved last year to £420 million, and as it looks to expand it will tap its new £700 million revolving credit facility and move to a net debt position during the year, with net cash seen between zero and £200 million in December 2024.
Shareholders will be relieved to hear the total dividend for 2023 was at least held at 60p per share, and the firm said its intention was to ‘at least maintain the 2023 dividend per share in 2024, with a view to growing this over time as market conditions permit’, although intentions and actions don’t always add up to the same thing.
CAUTIOUS OUTLOOK
Persimmon said its 2023 year-end marketing campaign generated ‘a significant number of leads’, which together with more competition in the mortgage market and improved affordability means demand appears steady, although there are clear regional differences.
The current forward sales position is £1.55 billion, of which £946 million is private sales with an average selling price of £280,000, and Persimmon expects to deliver between 10,000 and 10,500 completions this year, a small improvement on last year but still a far cry from 2022’s level of 14,868 units.
The firm is still using incentives to drive reservations, including part-exchange, but stripping out bulk transactions the net private sales rate in the first 10 weeks of this year was no better than last year at 0.53 per outlet per week.
ANALYSTS’ VIEWS
‘In the face of subdued demand and evolving regulatory frameworks, Persimmon's 2023 results mirrored the complexities of the UK's housing market’, commented Andy Murphy at Edison.
‘Looking forward, the company’s commitment to quality enhancements and robust financial management underscores its resilience. However, its trajectory, like many others, remains contingent upon the recovery of the UK property market.’
Oli Creasey, property analyst at Quilter Cheviot, said while most of 2023’s performance was already known, ‘what is of greater concern for shareholders is the outlook for 2024 isn’t really any better’.
‘Sales volumes year-to-date are going through at approximately the same rate as 2023, and management expect overall volumes to be only marginally (+3%) ahead of the prior year, and for the operating margin to be about the same. It’s worth noting the sales rate of 0.53x so far in 2024 is some way lower than peers such as Taylor Wimpey, whose equivalent rate was 0.67x.’
Creasey also flagged the drop in cash and the firm’s intention to return to an average net debt position this year, suggesting investors ‘may need to be convinced the falling cash is not an issue, noting the company has finished the year with more cash than this every year since 2012’.
