ii view: mini-Budget boost for Persimmon

Shares of this huge housebuilder are up over 60% since the March lockdown, and it has political backing.

First-half trading update to 30 June

• Revenues down 32% to £1.19 billion 
• New home legal completions down 35% to 4,900
• Average selling price up 4% to £225,050
• Forward order book up 15% to £1.86 billion

Chief executive Dave Jenkinson said:

"Throughout the period, we continued to be guided by our clear purpose of delivering long term sustainable returns in the best interests of all our stakeholders, while managing the risks inherent to the housing market cycle. The benefits of this consistent approach can be seen in the strength of Persimmon's performance in a first half dominated by the challenges of Covid-19.

“Our build programmes had returned to normal levels by period end, and we have seen encouraging sales levels throughout the period, in particular, over the last six weeks when net reservations have been 30% ahead year on year.

"We enter the second half in a strong position, with work in progress well advanced, forward sales c. 15% ahead year on year, and cash holdings of £830 million. Our financial strength and the agility of the business in responding to Covid-19 has ensured Persimmon is in robust health, and fully able to play its part in delivering the new homes the country needs to support the UK's recovery, in a range of future economic scenarios."

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 around 5,000 people and sold 15,855 new homes in 2019, 594 less than in 2018.

For a round-up of this latest trading update, please click here. 

ii view:

Persimmon has over the last year been plagued by build quality and customer service issues. Fixing those quality issues in late 2019 lowered completion volumes. Now, Covid-19 has left it and the industry with a period where it has built few new homes. New home legal completions for this latest first-half year are down 35% to 4,900. 

For investors, build quality issues left the share price trailing rivals over 2019. Barratt Developments (LSE:BDEV) shares rose by over 60%, Persimmon rose by just under 40%. Now Covid-19 and the conservation of cash has left it without the key attraction of shareholder returns. It previously scrapped a surplus capital payment of 125p per share and postponed the 2019 final dividend of 110p per share due in early July. A reassessment is expected in the second half of the year. 

But group operations have now reopened with the government again helping what appears to be a favoured sector. This week’s mini-Budget temporarily raised the threshold for stamp duty, making it cheaper for buyers. In all, while life is unlikely to return to normal for some time, it appears that even Covid-19 will not be allowed, at least by the government, to stand in the way of Persimmon and the housebuilding industry. 

Positives

• Forward order book up 15%
• Focused on regions outside of London and the South East 

Negatives

• Shareholder returns suspended under Covid-19
• Build quality and customer service issues have hit performance

The average rating of stock market analysts:

Strong buy