If higher stamp duty and uncertainty ahead of the European Union (EU) referendum were supposed to knock the wind out of the sails of UK housebuilders, there is little evidence of this in Persimmon' s (PSN) latest trading update covering the period from the year to 14 April.
What's new:
■ Reservations up from last year despite Brexit worries
■ Planning delays still a restraint on new site openings
■ Bumper dividend payout remains on target
Potential buyers visiting the company's 370 active sites were up by 12 per cent from a year earlier, while legal completions were up 8 per cent, helping to boost forward sales revenue to £2.2bn. The group now has 7,598 private homes sold forward at an average selling price of £220,000, up 5.8 per cent.
Buyers continue to benefit from historically low mortgage rates, and strong demand has meant that cancellation rates continue to run at historically low levels. Of the 100 new sites planned for the first half of the year, 75 have already been opened, and the target is to have 400 'active' outlets by the end of 2016. However, increasing the number of sales outlets is still restrained by planning delays.
Persimmon continues to add to its land bank, and recently secured an extension to its £300m revolving credit facility that will now run until March 2021.
Deutsche Bank says…
Hold. An 8 per cent rise in completions is well ahead of our full-year estimate of 3 per cent, although the average selling price is slightly below our estimates, mainly due to a change in the mix of units sold. Land replenishment is likely to slow, notably in the north west, as Local Plan requirements will require the release of greenbelt land. Preserving its spending power will then place Persimmon in a stronger position to chase what should turn out to be high-quality land. We are forecasting adjusted pre-tax profits of £717m for the year to December 2016, and EPS of 186p (from £638m and 169p in 2015).
Canaccord Genuity says…
Hold. Strong cash flow and capital discipline mean that Persimmon is well placed to continue with its capital return strategy to shareholders. Current trading is firmly supported by the strong order book, even if sales do potentially slow in the run-up to the EU referendum. The shares currently have the most expensive price/net asset value ratio in the sector at a forecast 2.5 times for 2016. But much of this is justified by the high return on capital employed, as well as the attractive dividend payout equating to a yield of around 5.5 per cent. And crucially, Persimmon has no exposure to the Central London market. For now, though, the shares look close to fair value.
