Join our community of smart investors

Persimmon winning by a length

The housebuilder continues to benefit from strong market conditions, and is returning capital to shareholders
August 18, 2015

If market expectations are right and interest rates are to start their ascent in the early part of next year, Mike Killoran, finance chief at housebuilder Persimmon (PSN), is relaxed about the potential impact on his customers. "There is good reason to believe that we have a stable market," he argues, pointing to the steadily tightening standards in mortgage lending since the mortgage market review rules came into effect in April 2014.

IC TIP: Buy at 2,081p

For now, all the metrics are moving in the right direction. Average selling prices, up 4 per cent at £194,378 for the half-year, increased at a similar rate to that in last year's half-year health-check. The question is when the housing market will start to lose steam. Adjusting for house type and region, Mr Killoran says the company experienced underlying sales price growth in the region of 2.5-3 per cent last year. This year, Persimmon is expecting slower growth in the range of 1.5-2 per cent.

The increased selling prices, coupled with cost discipline and Persimmon's ability to manufacture some of its own materials, helped boost its operating profit margin from 17.7 per cent to 20.5 per cent. The company is maintaining its sales rates: in fact it is "selling through" sales outlets, which means running out of units to sell, as fast as it can open new ones. This contributed to a return on average capital employed of 27.5 per cent - 5.8 percentage points higher than last year.

All this is helping the business to deliver on its plan to return £1.9bn, or £6.20 per share, to investors over the 10 years to June 2021. Persimmon has already returned 39 per cent of this total. The next instalment, to be paid in early July 2016, will be finalised in the year-end results next February.

Analysts at Peel Hunt expect pre-tax profits of £568m for the full year, giving EPS of 148p, up from £475m and 125p in 2014.

PERSIMMON (PSN)
ORD PRICE:2,081pMARKET VALUE:£6.4bn
TOUCH:2,081-2,083p12-MONTH HIGH:2,156pLOW: 1,181p
DIVIDEND YIELD*:naPE RATIO:14
NET ASSET VALUE:705pNET CASH:£278m

Half-year to 30 JunTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)*
20141.2020953.5na
20151.3327377.3na
% change+11+31+44-

Ex-div: na

Payment: na

*Persimmon made a capital return of 95p in April 2015, 70p in July 2014 and 75p in June 2013 as part of its return of capital to shareholders