ii view: mixed signals from Persimmon but dividend is attractive

Revenues down but first-half profits are tipped to beat management’s expectations. Buy, sell, or hold?  

First-half trading update to 30 June

• Completions down 10% to 6,652
• Revenue down 8% to £1.69 billion
• Average private weekly sales rate per site up around 1% year-over-year
• Average selling price up 4% year-on-year to £245,600

Guidance:

• Expects first-half profit to be modestly above its prior expectations

Chief executive Dean Finch said:

"I am pleased we have further enhanced our build quality in the period while also driving build efficiency to historical highs and increasing housing gross margin. We continued to complement this progress with high quality, disciplined investments in land driving growth in our outlet position. We have delivered this despite the significant on-going challenges being faced by the industry. 

"Our disciplined investment is further enhancing our strong land holdings which alongside our rigorous focus on margins is underpinning our continued financial strength. We are expanding our unique vertical integration capabilities to provide further supply resilience and cost efficiency.”

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 14,551 new homes in 2021, up from 13.575 in 2020.

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

ii view:

Started in 1972, housebuilder Persimmon is a constituent of the FTSE 100 index. In support of its housebuilding business, it also operates its own roof timber frame making business called Space4, along with both brick and roofing tile manufacturing operations.  

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For investors, operational challenges, including planning delays and some labour shortages, warrant consideration. Squeezed incomes and a cost-of-living crisis for consumers offer a tough backdrop, as does a 40-year high in inflation and rising interest rates. 

On the upside, consumer demand to date appears to remain solid. Rises in material costs are being countered by increased selling prices, while supply chain challenges are at least in part mitigated by Persimmon’s own in-house manufacturing operations. Mortgage availability does not look to be an issue, while governments over the years have regularly moved to assist the industry in times of difficulty. In all, and with the sector already appearing to price in a more difficult time ahead, and the shares offering a forecast dividend yield of 10-13%, investors are being paid generously to remain patient. 

Positives

• Forward sales of £1.87 billion
• Attractive dividend payment (not guaranteed)

Negatives

• Uncertain economic outlook
• Previously halt dividends under the pandemic

The average rating of stock market analysts:

Strong buy