ii view: Onwards and upwards for Persimmon

Build quality issues have overshadowed 2019, but management is confident regarding the outlook.

Trading update to 31 December 2019 

• Completions down 4% to 15,855
• Revenue down 2.4% to £3.65 billion
• Pre-tax profits to be in line with analyst estimates
• Forward sales down 3% to £1.36 billion
• Cash balance down 19% to £844 million

Chief executive Dave Jenkinson said:

"Persimmon continues to make good progress with the implementation of its customer care improvement plan. Central to this plan is putting customers before volume, with new home legal completions for 2019 being 4% lower than last year.

"I am encouraged by the enthusiasm and commitment with which the whole Persimmon team is making the step change necessary to deliver higher levels of quality and service to our customers.  When combined with Persimmon's strong forward build and sales position, robust liquidity and industry-leading land holdings, I am confident of the group's future success."

ii round-up:

Headquartered in York, this housebuilder operates from 31 regional offices throughout the UK. Its brand names are Persimmon Homes, Charles Church and Westbury Partnerships. 

Persimmon (LSE:PSN) employs around 5,000 people. It sold 15,855 new homes in 2019, 594 less than in 2018. 

The builder has also developed offsite manufacturing capabilities. Its Space4 business manufactures highly insulated timber frames, wall panels and roof cassettes. 

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

ii view:

Build quality and customer service issues left Persimmon’s share price trailing rivals during 2019. While Barratt Developments (LSE:BDEV) shares were up over 60%, Persimmon rose by just under 40%. 

For investors, moves to fix build quality issues have lowered completion volumes, while negotiating a trade deal with the EU before the end of 2020 will not be easy, leaving some Brexit risk still on the table.

However, shareholder returns across the housebuilding sector remain attractive. A one-year forecast dividend yield of over 8% (not guaranteed) is highly attractive in the current low interest rate environment. Hopes that the Bank of England will move to cut interest rates have been growing and a newly elected government could also opt to extend the Help to Buy scheme, due to end early 2023. 

Positives

• Persimmon’s is focused on regions outside of London and South East. 
• It has been returning surplus cash to shareholders. 
• Hopes for a UK interest rate cut have grown

Negatives

• Build quality and customer service issues have hit performance
• Help to Buy scheme due to end in 2023
• Increases in interest rates could reduce customer demand

The average rating of stock market analysts:

Strong buy