Over the two years since housebuilder Persimmon (PSN) unveiled its plan to return £1.9bn to shareholders by 2021, it has brought forward the date for these dividend payments no less than three times. Not only does this mean shareholders can expect very a very attractive distribution in 2015, but withcash continuing to roll in and a very well-stocked land bank, we feel there is a good chance that payments could be brought forward again over the next 12 months and there is also potential for the amount of capital being returned to be increased. What's more, Persimmon is in a sector sweet spot based on its exposure to regional markets and relatively low-priced properties - nearly two-thirds of sales are priced below £200,000 - which means it should benefit from recent stamp duty changes.
- Big dividend payout promised
- Significant cash pile
- No exposure to the London market
- Impressive land bank
- Cost inflation on the increase
- Dear on price/NAV valuation
Persimmon's current plan to return about 620p a share between 2013 and 2021 works out at around 620p a share, which equates to a ballpark yield in excess of 6 per cent a year. The main driver of the payout comes from accelerating cash generation, coupled with a strategic aim not to overexpand during the upward phase of the current cycle. At the half-year point at the end of June 2014, the group had net cash of over £300m and a pre-close statement for the full year saw this rise to £378m.
Meanwhile, the beneficial imbalance between housing supply and demand is likely to continue, further underpinned by cheap mortgages, lower stamp duty and the government's Help to Buy scheme. Persimmon's full-year legal completions rose by 17 per cent to 13,509, and forward sales for 2015 totalled £973m, up 7 per cent. And while private sale reservation rates were down 2 per cent, this was against some tough comparatives, with reservations last year up 45 per cent from 2012.
| PERSIMMON (PSN) | ||||
|---|---|---|---|---|
| ORD PRICE: | 1,519p | MARKET VALUE: | £4.65bn | |
| TOUCH: | 1,519-1,521p | 12-MONTH HIGH: | 1,614p | LOW: 1,055p |
| FORWARD DIVIDEND YIELD: | 6.6% | FORWARD PE RATIO: | 10 | |
| NET ASSET VALUE: | 656p | NET CASH: | £378m | |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£m)* | Earnings per share (p)* | Dividend per share (p) |
|---|---|---|---|---|
| 2011 | 1.54 | 148 | 36 | 10 |
| 2012 | 1.72 | 222 | 56 | 75 |
| 2013 | 2.09 | 330 | 82 | 70 |
| 2014* | 2.60 | 469 | 120 | 95 |
| 2015* | 2.90 | 567 | 145 | 100 |
| % change | +12 | +21 | +21 | +5 |
Normal market size: 1,500 Matched bargain trading Beta:1.41 *Bank of America Merrill Lynch forecasts, adjusted PTP and EPS figures | ||||
Opening new development sites fast enough, as opposed to demand, is now one of the industry's main constraints. For example, while the group is operating from around 375 active sites, it has so far managed to open only 80 of the 100 net sites planned for the second half.
Meeting the increase in demand means maintaining a significant land bank, as it can take years to secure planning consent. Over 10,000 new plots on 68 sites were acquired during the first half, with a further 17,000 acquired in the second half. Crucially, the group has been successful in drawing through land from its strategic land bank for development - around 8,000 plots from a land bank which stood at 16,900 acres at the half-year-end. Importantly, such a well-stocked land bank helps underpin the potential for accelerated dividend payments and increased capital returns in the future.
Cost inflation is an issue, but greater use of the group's Space4 timber frame manufacturing factory is helping to mitigate this. Space4 output increased by 37 per cent in the first half, providing enough insulated panel frames for 2,483 new homes. And operating margins continue to rise going from 12.9 per cent in 2012 to a forecast 18.2 per cent this year. And return on capital employed is forecast to rise from 11.7 per cent in 2013 to 16.1 per cent.
It's also worth noting that, despite the sustained increase in output and profitability, Persimmon is still not back to the peaks achieved in 2007 when pre-tax profits hit £585m on sales of £3bn.
