Bumper Persimmon fails to shake off uncertainty

Despite the housebuilder's £1 billion profit and generous dividend, Persimmon shares are under a cloud.

Just when investors thought it was safe to go back into mortar, the government's reported review of the Help to Buy scheme has dealt another blow to the sector.
Persimmon (LSE:PSN) 6% share price decline yesterday represented the brunt of the blow, with an inevitable read across to the other housebuilders. It may not be an immediate concern, but it is a timely reminder that this tailwind will not be in force indefinitely, while it also underlines the need for good governance.

This is in addition to the twin concerns which Brexit brings, namely a sharp economic downturn in the event of a poor outcome, with the associated drop in sterling resulting in a higher cost of materials.

With markets generally subdued, although much improved in the year to date, the overall environment has been working against the sector, and the company's outlook on completions is that these are likely to be flat in the year ahead.

Yet the results themselves show little to no sign of fatigue. Indeed, the key metrics reflect the actual sweet spot that the likes of Persimmon are in, as opposed to the potential difficulties which may lie ahead.

Pre-tax profit has risen 13% to more than £1 billion, new housing operating margin is in excess of 30%, return on capital is an extraordinary 52.8% and forward sales are looking healthy, with a book which tops £2 billion. In the meantime, this performance has enabled the generous return of cash to shareholders, with the current dividend yield of 10% supplanted by a net cash position for the company of over £1 billion.

Whilst not commenting on the government's potential review, Persimmon did confirm fresh service initiatives and a new approach to customer satisfaction. With these results set against strong prior year comparatives, the numbers are also testament to the fact that the company continues to make hay while the sun shines, whatever supply constraints may currently be in force.

The shares have endured a difficult time given the potential economic backdrop, although over the last quarter a gain of 11% (albeit coming from a lower base) is reflection of a strong corporate performance.

Over the last year, however, the picture is rather different as the price has fallen 5%, which compares to a 1.5% dip for the wider FTSE 100. It may well continue to be the case that, despite its best efforts and with an uncertain period ahead, the market consensus of Persimmon as a strong hold will stay in place.