Interactive Investor

Persimmon's progress justifies popularity in the City

8th July 2021 08:56

Richard Hunter from interactive investor

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It's been tough for the housebuilding industry, but this update is promising and Persimmon remains the preferred play in the sector.

Persimmon (LSE:PSN) is fully back on track, with most metrics improving to above pre-pandemic levels.

The one area which Persimmon had previously flagged as unlikely to recover before 2022, namely legal completions, is getting extremely close. Against an easy comparative in 2020, completions have risen by 51% and against 2019 are just 2% shy of a true return to form.

Elsewhere, such comparisons are even more promising. Revenues are up by 55% against 2020, and 5% ahead of 2019, with the average weekly sales rate also ahead by 30% and 20% respectively.

Meanwhile, the company continues to invest in the future, having spent £200 million on 10,000 plots over the period, underpinned by an extremely healthy cash balance of £1.3 billion and an additional undrawn credit facility of £300 million.

The strength of the economic recovery globally has resulted in a demand and supply imbalance in certain areas, including raw materials. In the case of Persimmon, these additional costs have been offset by the strength of the housing market, where the average selling price of homes has increased by 4.9% year-on-year.

With a forward order book of £1.8 billion and a balance sheet awash with cash, the group has also returned to pre-pandemic levels of dividend payments to an audience which had otherwise been income-starved. The current yield of 7.7% is punchy by any standards but is also reflective of management prospects in the new environment.

The withdrawal of the stamp duty holiday and other government assistance schemes have yet to fully wash through to the wider economy, and could yet stymie the nascent recovery in terms of unemployment and general consumer confidence. By the same token, Persimmon is confident of the long-term prospects for a housing market which is still undersupplied and where low interest rates and mortgage availability are notable tailwinds.

With accompanying comments also upbeat on trading conditions generally, Persimmon is set fair to push further ahead. The share price has risen by 27% over the last year, as compared to a gain of 16% for the wider FTSE100 index, and investors are equally impressed by its compelling prospects, with the market consensus of the shares as a 'strong buy' marking Persimmon as the preferred play in the sector.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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