Housebuilder Persimmon made a bold statement on the future health of the housing market by writing back £28m to the value of its landbank at its half year results. During the course of last year, the builder wrote down the carrying value of land and work in progress by £652m.
"At the end of last year, we took the forward view that peak to trough price declines would be 27 per cent," explains chief executive Mike Farley. "To the half year, there has been a 21 per cent reduction peak to trough. We won't know until we get there, but there is potential for further write backs in the future." However, falling house prices and the use of incentives to secure sales did cause Persimmon's average selling price to plunge by 14 per cent to £155,524. Funding buyer deposits through is the most prevalent incentive, with the government's HomeBuy Direct and Persimmon's own scheme being used on a quarter of total sales. The carrying value of funding these deposits is held on the balance sheet at £47.2m.
Completions fell 27 per cent year-on-year, with 4,006 homes sold in the six month period. Current forward sales, including those agreed after the period end, amount to £910m, against £836m at this stage last year. Persimmon reported stronger than expected visitor levels over the summer months, and says cancellation rates are 16 per cent - lower than the 30 per cent rate witnessed at December's year-end. The company now plans to open 50 sites in second half although Mr Farley admits that the mortgage market remains a concern. "There is a dearth of higher loan-to-value products, with 75 per cent being about the limit," he notes.
As with Bovis, which announced half year figures on Monday, cashflow generation has been strong. With dividend payments suspended, Persimmon's debt reduction strategy is progressing ahead of plan and borrowings fell from £601m to £475m in the six month period. Net debt is expected to be below £400m by its year end.
Broker KBC Peel Hunt forecasts adjusted pre-tax loss of £15m and a loss per share of 4.5p (2008: £127m/35.2p).
| PERSIMMON (PSN) | ||||
|---|---|---|---|---|
| ORD PRICE: | 506p | MARKET VALUE: | £ 1.52bn | |
| TOUCH: | 506-507p | 12-MONTH HIGH: | 526p | LOW: 180p |
| DIVIDEND YIELD: | nil | PE RATIO: | na | |
| NET ASSET VALUE: | 515p | NET DEBT: | 31% | |
| Half-year to 30 Jun | Turnover (£m) | Pretax profit (£m) | Earnings per share (p) | Net div per share (p) |
|---|---|---|---|---|
| 2008 | 998 | 36.9 | 8.8 | 5.0 |
| 2009 | 612 | 9.8 | 3.3 | nil |
| % change | -39 | -73 | -63 | -100 |
