Homebuilder heaven: Persimmon rises 6.4% on robust resultsOn July 9, 2020 by Thomas Belayneh
UK homebuilders were on a high today following Rishi Sunak’s announcement that he would raise the threshold on paying stamp study from £125,000 to £500,000, as well as a strong trading update from Persimmon.
Whilst the FTSE 100 declined by 1.73% today, Persimmon advanced 6.41% higher to £25.89 a share, as the company announced construction activity had returned to normal levels by the end of June. Sales were up by approximately 30% over the past six weeks versus the same period last year.
Investors, clearly encouraged by Persimmon’s resilience to the operational challenges faced as a result of Covid-19, bid up shares in peers including Berkeley Group and Barratt Developments with both rising 3.8% and 1.9%, respectively. All three were among the top five risers on the FTSE 100 today.
The UK’s most valuable homebuilder by market capitalisation (£8.3bn) reported forward sales that were 15% higher than at the same point last year and a cash position of £830m, which was marginally lower than the £832.8m that it held last year.
The stable cash position was remarkable in light of the fact that Persimmon kept all of its staff on full pay without making use of the UK government’s furlough scheme. The company was also on hand to help its suppliers and subcontractors.
Forward new home sales as at 30th June 2020 were £1.86bn and this was 14.8% higher than the £1.62bn reported in H1 2019.
Although the forward sales figure looks attractive, total revenue was down 32% to £1.19bn from £1.75bn a year ago, while housing revenues fell 33% to £1.1bn from £1.65bn. Non-housing revenue, which includes income from the provision of broadband services, fell by approximately £10m.
Despite downbeat projections from big mortgage lenders like Nationwide and Lloyds Bank, Persimmon’s average selling price remained resilient over the period, rising 3.7% from £216,942 (H1 2019) to £225,050, challenging the widely held belief that prices would fall this year.
To this end, it was encouraging to see that buyers hadn’t rowed back on their purchase decisions as cancellations were in-line with their historical levels.
As previously announced, April’s ‘surplus capital return’ dividend of £1.25 per share remains cancelled. Payment of the proposed annual dividend for 2019 of £1, which was supposed to be paid on 6th July 2020, will be reassessed in the second half of the year once the effects of the coronavirus have become clearer.
In Finbytes’ view, we believe the board will and should sanction the 2019’s annual dividend in light of the fact that housing demand should be supported by the removal of stamp duty on properties below £500,000, as well as the fact that Persimmon’s average selling price has remained firm during the period and is well below this threshold.
This site uses Akismet to reduce spam. Learn how your comment data is processed.