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  • Writer's pictureMark Watson-Mitchell

Persimmon Homes – sales will be down markedly this year

The vision of Persimmon (LON:PSN) is to be Britain’s leading homebuilder, offering the best value homes on the market.

However, its Group CEO predicts that sales will be markedly down this year.

Based in York, this £4.6bn capitalised group has some 31 regional offices across the country and operates with the brand names of Persimmon, Charles Church and Westbury Partnerships.

The group has reported that the second half of the year was impacted by rising interest and mortgage rates, inflation and weaker consumer confidence had its effect on customer behaviour across the housing market.

That change in market conditions gathered pace in the fourth quarter and has been reflected in the reduction in its recent weekly sales rates and reducing its forward sales position as it progressed in the first two months of the new financial year.

The group’s average selling price increased 5% year on the year, reflecting house price inflation and a more sophisticated approach to pricing in local markets.

The total group revenues for 2022 were 6% higher at £3.82bn (£3.61bn), while the underlying pre-tax profit was £1,012.3m (£973.0m), with the underlying basic earnings per share were 247.3p (248.7p), while the dividend proposed is 60p per share.

In 2022 with an increase of 2%, it sold 14,868 (14,551) homes, at a 5% higher average selling price of £248,616 (£237,078).

Revenue from the sale of new housing was £3.69bn (£3.45bn).

But drilling down into those figures we note that the group’s land holdings have reduced to some 87,190 (88,043) plots, while its current forward sales position is 31% lower at £1.52bn (£2.21bn).

The group average selling price for its private stock was £272,206 (£259,231), while its Housing Association stock were sold at an average £142,000 (£131,976).

The group has increased its provision by £275m to £350m for building safety remediation.

However, the group considers that the longer-term demand for new homes remains strong.

Net assets per share work out at 1077p, which is lower than the 2021 figure of 1136p.

Group CEO Dean Finch stated that:

"The market remains uncertain. Our marketing campaign has helped improve the Group's sales rates in the new year from the lows at the end of 2022, but they still remain lower year on year.

We have carefully managed our pricing, recognising the improved value and energy efficiency of our product in these difficult times and sales prices have proved resilient.

We responded quickly to stimulate sales, enhance cost controls and preserve cash, promptly slowing new land investment in the fourth quarter of last year.

Nonetheless, the sales rates seen over the last five months mean completions will be down markedly this year and as a consequence, so will margin and profits. However, it is too early to provide firm guidance.”

Conclusion – well placed to navigate the backdrop

With high-quality land holdings, a strong balance sheet and an experienced management team, Persimmon is well placed to navigate this challenging short-term backdrop, whilst continuing to take advantage of any opportunities that may arise.

A year ago this group’s shares were trading at 2498p, since when they have bottomed out at 1113p before rising to 1452p ahead of the results.

In reaction to the figures the shares collapsed 9% to 1322p.


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