Persimmon is well poised

But not all housebuilders are equal. In the run up to the financial crisis, some got ahead of themselves, racking up debt and buying rivals at peak valuations. Persimmon acted differently. It resisted the temptation to go on an acquisition spree and it was never forced to ask shareholders to fund a rescue rights issue. True, it experienced some awful writedowns on the value of its land bank (see 2008's losses), and debts topped £1.1bn in April 2008. But Persimmon has always managed to generate a decent amount of cash and, by the middle of this year, debt was down to a nominal £18m. Apart from anything else, this has driven down finance costs from £22.7m in the first half of 2010 to £4.5m this year, and this charge is likely to disappear altogether in the second half. And in April, management secured a five-year credit facility of up to £300m.

While Persimmon's performed decently in the first half of 2011, its bosses expect better in the second half mainly as a result of changes in the sales mix. Completions in the first half eased a little from 4,657 a year earlier to 4,439, and average selling prices slipped from £168,936 to £162,647 because more affordable homes were sold. But the order book contains a higher proportion of large private homes, which will push average selling prices higher.

And the outlook is encouraging because – despite the traditionally quiet summer period, not helped this year by deepening economic worries – weekly sales rates are up 4 per cent from last year, while the order book is 10 per cent larger.

Persimmon has also been bolstering its profit margins by controlling development costs and generating better returns on houses built on recently acquired land, whose cost was cheap. In fact, operating margins have moved up from 8 per cent last year to 9 per cent. To maintain the momentum, the company opened 70 sites in the first half, with another 70 scheduled for the second half, keeping its overall number of sites at around 380. While Persimmon maintains that it has seen demand for new homes in most of its outlets, some 60 per cent of the 7,493 plots added to its consented land bank were acquired in the south of England.

Persimmon has lots of locked-in value in its land bank, which stands at 62,364 plots, or around 6.5 years of output at current rates. This is in the books at £1.52bn. Add in the value of work in progress, part-exchange properties and show houses, and inventories rise to over £2bn. Net off all the group's liabilities against this and there is value per share of 450p, pretty much the same as the share price. In addition, Persimmon has £450m-worth of non-current assets, which effectively get zero market value.

Dividend policy is understandably cautious after management was obliged to axe payments in 2009. Yet the current payout looks pretty meagre – after all, the half-year dividend was covered nearly four times by underlying earnings. That suggests there is room for the payout to rise smartly, especially as almost all debt has been paid off.

Persimmon is aware of the difficulties facing first-time buyers and has secured £35m through the Homes & Communities Agency under the FirstBuy shared equity scheme that will help deliver around 2,100 new homes between now and March 2013. Overall completions for the current year are expected to be on a par with last year at around 9,400 units.