ii view: the investment case for housebuilder Persimmon

This FTSE 100 company more than halved in value last year and is down a further 5% year-to-date. We assess prospects. 

Full-year results to 31 December

• Revenue up 6% to £3.82 billion
• Pre-tax profit down 24% to £731 million 
• Cash held down 31% to £862 million
• Total 2022 dividend of 60p per share, down from 2021’s 235p per share 

Guidance:

• At least maintain the 2022 dividend per share with a view to growing over time

Chief executive Dean Finch said:

"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.”

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ii round-up:

Persimmon (LSE:PSN) operates from 30 UK regional offices and 3 offsite manufacturing facilities where it makes items ranging from timber frames and roof systems to bricks and tiles.  

Its brand names are Persimmon Homes, Charles Church and Westbury Partnerships. Employing over 5,000 people, it completed 14,868 new homes in 2022, up from 2021’s 14,551. 

For a round-up of these latest results announced on 1 March, please click here. 

ii view:

Started in 1972, the York headquartered housebuilder is today a constituent of the FTSE 100 index. It focuses on the more affordable end of the market and in particular first-time buyers. Rivals and fellow index members are Berkeley Group Holdings (The) (LSE:BKG), Barratt Developments (LSE:BDEV) and Taylor Wimpey (LSE:TW.). 

For investors, the tough economic backdrop including rising interest rates has generated declining sales, with expected completions of up to 9,000 homes in 2023 down sharply from 14,868 in 2022. As such and given required increased sales incentives and marketing costs, the impact on margin could reduce profit significantly. Selling prices, despite having remained resilient to date, could fall, uncertainty regarding industry required provisions for building safety remediation persists, while shareholder returns have been cut significantly.    

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On the upside, medium to longer-term demand for new homes looks likely to persist, management action to conserve cash has been taken with shareholder returns reduced, and mortgage availability has remained robust. Meanwhile, an estimated price-to-net asset value of around 1.1 times now sits comfortably below the three-year average suggesting the shares are better value.  

For now, and while a generous dose of caution looks sensible, existing shareholders might choose to stick with the shares and await a cyclical upswing. New investors will lock in a dividend yield in the region of 5%, but must be prepared to hold for the long term given the volatile nature of the industry currently. 

Positives

• Robust average selling prices
• Hopes to at least maintain 2022 dividend payment 

Negatives

• Highly uncertain economic outlook
• Previously halt dividends under the pandemic

The average rating of stock market analysts:

Weak hold