- Sales and earnings decline priced into shares
- Full-year completions to top estimates
- Firm sticks to earlier profit target
Leading housebuilder Persimmon (PSN) released a grim trading update which showed profits fell by nearly two thirds in the first half of the year, yet the shares jumped to the top of the FTSE 100 leader board with a gain of almost 5% to £11.78 which suggests investors were prepared for the news.
The firm said it expected full-year completions to be at least 9,000, the top end of its previously indicated range, while operating profits would be ‘in line with expectations given stubborn build cost inflation in the period’.
STICKING TO ITS FORECASTS
The York-based developer reported a 30% drop in revenue for the first six months of 2023 to £1.19 billion as a small increase in average selling prices to £256,445 failed to offset a 36% fall in completions to 4,249 against 6.652 in the same period of 2022.
Persistent build cost inflation and sales incentives meant the first-half new-build margin shrank to 21.5% from 31% a year ago, while the underlying operating margin almost halved from 27% to 14% resulting in a profit of £152 million against £441 million last year.
Despite earnings per share sliding from 106.5p to 34.4p, the company reinstated the interim dividend with a payment of 20p per share to be distributed in early November.
Also on a positive note the firm had forward private sales of £875 million compared with £478 million at the start of the year, and 5,102 plots across 33 sites with detailed planning consent, allowing it to top its previous forecast of 9,000 full-year completions.
‘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. We are on track to deliver profit expectations for the year and are building a platform for future growth’, commented chief executive Dean Finch.
EXPERT VIEW
‘Persimmon is sticking with its full year expectations, which suggests it is doing a decent job of managing said expectations’, observed Russ Mould, investment director at AJ Bell.
‘The first half was truly bleak and understandably so given the removal of the crutch provided by the Help to Buy scheme and as potential purchasers face up to much more expensive borrowing costs.
‘The strategy of retrenchment and adopting a wait-and-see approach seems a prudent one. The company is also looking at belt-tightening, putting pressure on contractors and adopting more efficient build processes.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Ian Conway) and the editor of the article (James Crux) own shares in AJ Bell.
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