PERSIMMON (PSN)

Beating City forecasts is something of a requirement for housebuilders these days, and Persimmon did so comfortably. The pre-goodwill, pre-tax profit of GBP268m was well ahead of the expected GBP237m-GBP260m range, as the company concentrated on margin improvement rather than sales volumes. Operating margins came in at 17.5 per cent (up from 15.2 per cent last year), recovering from the dilutive affect of the Beazer acquisition. The strong housing market helped, as did tight control of build costs and use of cheap land from the company's strategic land bank. Completions inched up to 12,352, while the average selling price rose 13 per cent to GBP138,000. The post-tax return on capital of 15.5 per cent was almost double the group's 8 per cent cost of capital. Persimmon's 4.3-year land bank provides a solid foundation for future growth. This year should see further expansion of the upmarket Charles Church operation - completions there rose from 473 to 819, and the division should sell over 1,000 units in 2003. Operating margins, at 13.8 per cent in the second half, are moving up to the standards set by the rest of the group. Persimmon's management expects to see some cooling in the top end of the market but, elsewhere, prices should continue to improve. Merrill Lynch expects pre-tax profits (before goodwill amortisation) of GBP306m this year, giving EPS of 77.6p, rising to GBP335m and 85p in 2004. Ord price: 448pMarket value: GBP1.25bn Touch: 447-449p12-month High: 488p Low: 337p Dividend yield: 3.4%PE ratio: 7 Net asset value: 335p*Net debt: 36% *Includes intangible assets of GBP193m, or 69p a share Year toTurnoverPre-taxStated earningsNet div per 31 Dec(GBPm)profit (GBPm)per share (p)share (p) 19985726125.110.4 19996968232.111.1 2000+74210440.112.4 20011,47816746.013.7 20021,71125763.115.2 % change+16+54+37+11 +Restated Last IC view: 22 Nov 2002, page 31xd: 12 Marpd: 25 Apr