Persimmon stays on target

■ Visitor levels up 10 per cent■ Private sales up 20 per cent■ Order book up 9 per cent

Persimmon delivered a solid performance in the first 15 weeks of the current financial year, with visitor levels to its housing sites up by 10 per cent on the same period a year ago. Moreover, cancellation rates are running at historically low levels of around 17 per cent.

And the spring housing bug appears to have been busy biting potential buyers, with weekly private sales rates up by 20 per cent year on year. Consequently, the group order book has been boosted by 9 per cent to £1.24bn. Progress has also been made improving margins and cash generation. In fact, despite approaching its peak working capital requirement at the end of March, Persimmon turned last year's debt of £113m into net cash of around £12m. Margins have improved mainly as a result of greater use of cheaper land acquired after the peak in land values. And underpinned by a healthy land bank and decent cash generation, management confirmed its long-term objective of returning £1.9bn, or 620p a share, in dividends over the next nine and a half years.

Chairman Nicholas Wrigley remains upbeat about prospects for the year ahead, noting that local authorities are now required to plan in favour of sustainable development, which should lead to a much more streamlined and quicker planning process.

Peel Hunt says...

Hold. While we see some risk for housebuilders from a weakening mortgage market including limited lender interest in the NewBuy scheme, shares in Persimmon offer the prospect of a very high return, and the first special dividend is due in June next year worth 75p a share. Cash generation remains strong, and with £12m of cash at the high point of working capital requirements, we forecast cash holdings of more than £100m by the year-end. Expect adjusted pre-tax profits for this year of £176m and EPS of 43.2p (from £146m and 37.2p in 2011).

Northland Capital Partners says...

Buy. Persimmon's impressive dividend promise equates to £200m of dividend payments every year for the next decade and a yield of around 10 per cent. And yet the group believes that this can be achieved without incurring any meaningful levels of debt. Extending the run of improving margins through self-help initiatives looks set to continue through the current year. The group has a significant land bank that is set to bolster returns and net asset value (NAV) per share over the next five years. Adjusted pre-tax profits for 2012 are forecast at £164m, giving EPS at 41p.

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