Persimmon Produce Stable 1H Numbers

By David Madden (Market Analyst at CMC Markets UK)

Persimmon (LON:PSN) shares are higher this morning after the company registered a strong set of first-half results. Revenue jumped by 5% and pre-tax profit rose by 13%. The average selling price of a new home rose by 1%, which is a slight decrease on the 1.2% growth achieved in the first-quarter. The underlying new housing operating margin increased to 29.7% from 27.6%, and this is an encouraging sign as it suggests the firm is keeping an eye on costs.

Persimmon’s outlook remains positive as forward sales are up 6%, and the home builder confirmed they are on track to ‘high quality, sustainable growth’. The company acknowledged the summer season can be a bit slow, but it anticipates customer interest to return to ‘normal’ after the summer. Persimmon predicts the group’s cash generation will remain strong, and it is committed to its attractive dividend policy.

The company had a strong start to the year as first-quarter revenue jumped by 5%, and home completions jumped by 3.6%. In July, the firm confirmed that ‘consumer confidence remains resilient’ and they are committed to building affordable homes in locations where people want to live and work. The group build properties across England, Scotland and Wales, and a geographically diversified operation should reduce its risk.

In February, the group posted a 25% jump in full-year profit and a 9% rise in revenue, and housing completions rose by 6%. The company paid a final dividend of 110p, and a special dividend of 125p. Persimmon launched its generous pay-out scheme a number of years ago, and it aims to pay out £13 per share by 2021. The pullback in the share price means the dividend yield is over 9%, and rate is head and shoulders above its peers’ rate.

Earlier this month, the Bank of England (BoE) hiked interest rates for the first time since the credit crisis. Mark Carney, the BoE chief, alluded to one hike per year for the next few years. The increased cost of borrowing will work against Persimmon, but given how low rates are, it is doubtful it will have a major impact on the company.

There has been a cooling in UK house prices, and only yesterday, Rightmove revealed a report which showed that average asking prices for houses in the UK dipped by 2.3% in August, and that follows on from a 0.1% fall in July. The property site described the fall in asking prices as a ‘late summer sale’. This could be an indication of what is to come in terms of future asking prices from Persimmon.

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