- Last six weeks show a marked slowdown in sales
- Firm is cutting prices to encourage buyers
- Less generous dividend policy from 2023
Investors in house builder Persimmon (PSN) took fright at the firm’s latest trading update, sending the shares to the bottom of the FTSE 100 performance table.
As well as a tougher outlook for sales, news the firm was reining in cash returns to shareholders prompted an 8% slide in the stock price to £12.16 in early trading.
WHY DID TODAY’S UPDATE DISAPPOINT?
Commenting on the period from the start of July to the beginning of this week, the developer said sales had started well but noted it had seen a ‘recent deterioration in market conditions leading to increased cancellation rates’.
While the firm is fully reserved for the current year and is on track to deliver between 14,500 and 15,000 homes, it cautioned cancellation rates on future sales had jumped to 28% in the last six weeks compared with 21% in the prior 12 weeks ‘introducing some uncertainty’.
Average net private home sales per site over the period have dropped from 0.78 a year ago to 0.6 per week but in the last six weeks that figure has fallen further to just 0.48 homes per week.
Moreover, while the group said it was managing inflationary pressures well, input costs are rising at between 8% and 10% yet in the last six weeks selling prices have been cut by 2% compared with the previous 12 weeks to encourage nervous buyers.
As a result, the forward order book of sales beyond this year stands at just £770 million compared with £1.15 billion this time last year.
WHAT ABOUT FUTURE CASH RETURNS?
There was a further blow for shareholders in the form of a revised capital allocation strategy which implies less generous payouts from next year.
The firm said that following a review ‘and reflecting the increased uncertainty in the political and macro-economic environment, alongside increased corporation tax and the residential property developer tax’, the board had decided to end its previous capital return programme.
In fairness, the current strategy dates from 2012 so was probably due for an overhaul anyway but there will now be no ‘special distribution’ for this financial year and from 2023 any excess capital will be used first to buy land and second to bolster the balance sheet while future dividends will be ‘well covered by post-tax profits’.
Between June 2013 and July this year, the firm paid out a total of £14.35p in ordinary and special dividends or 18% more than today’s share price making it a sought-after stock for income investors.
