ii view: is housebuilder Persimmon's optimism justified?

Pre-tax profit up 64% and a forecast dividend yield of over 7%. Buy, sell or hold?

First-half results to 30 June

• Revenue up 55% to £1.84 billion
• New home legal completions up 55% to 7,406
• Pre-tax profit up 64% to £480 million
• Cash held up 59% to £1.32 billion
• Total dividend of 235p per share (125p + 110p)

Chief executive Dean Finch said:

"Persimmon's first half performance has been robust. In particular, I am pleased we have delivered strong growth in legal completions whilst also achieving higher levels of build quality and customer satisfaction.

"We made good progress in the land market in the period, bringing over 10,000 plots of high-quality land into the business, achieving good visibility of new outlet openings and providing momentum for our future growth. With c. 85 new outlets opening in the second half of the current year, we are improving availability and choice for our customers.

ii round-up:

Persimmon (LSE:PSN) is headquartered in York and operates from 31 regional offices throughout the UK. 

Its brand names are Persimmon Homes, Charles Church and Westbury Partnerships. 

It employs over 5,000 people and completed 13,575 new homes in 2020.

For a round-up of these latest results, please click here. 

ii view:

Persimmon is the largest housebuilder by value listed on the UK market. It has broad UK coverage, with low exposure to the South East and London, although relatively high exposure to ‘Help to Buy.’ Chief executive Dean Finch took the helm in late September 2020. Persimmon purchased over 10,000 plots of land in this latest half-year, giving it a landbank of over 85,000 plots. 

Like many rivals, Persimmon has also been returning excess capital to shareholders over recent years. Although returns had been halted given the uncertainty of the pandemic, they have now begun again.  

For investors, labour shortages and blockages in the supply chain for raw materials are adding to build cost inflation. A price-to-net asset value ratio of 2.6 times is comfortably above rivals such as Barratt Developments (LSE:BDEV) and Taylor Wimpey (LSE:TW.) at under two times, suggesting the shares are not obviously cheap. And economic uncertainty resulting from the pandemic cannot be overlooked, while there has been some recent government curtailing of house buyer assistance. 

That said, demand for new houses appears to remain robust, and Persimmon's forward sales position is 9% ahead of the same point in 2019. Previous customer issues look to have been addressed, with its most recent satisfaction survey scoring 91.9%, up from 89.6% last time. Management guidance also continues to point to 10% growth in sales completions this year. In all, and with the shares sat on an estimated forward dividend yield of over 7%, the shares will likely remain firmly on the radar of income seekers. 

Positives

• Cash held of over £1 billion
• Attractive dividend payment (not guaranteed)

Negatives

• Economic outlook uncertainty
• Previously halt dividends under the pandemic

The average rating of stock market analysts:

Strong buy