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Persimmon, Taylor Wimpey recovery prompts improved dividends

The housebuilders expect completions to close in on 2019 levels this year as demand continues to surge
Persimmon, Taylor Wimpey recovery prompts improved dividends
  • Persimmon and Taylor Wimpey expect to approach pre-pandemic completion levels this year
  • Dividend prospects are improved, with Persimmon targeting a 235p payment for 2021

Persimmon (PSN) and Taylor Wimpey (TW.) have flagged a faster-than-anticipated recovery in completions to pre-pandemic levels, ahead of further government stimulus for the housing market.

Completion volumes during the first half of this year are expected to approach 2019 levels for Persimmon, and a full return is expected in 2022. The group's average private weekly sales rates for the first eight weeks of 2021 was 7 per cent ahead of last year. However, a shift back towards more affordable housing will dilute the impact of increased sales on operating margins. 

Smaller rival Taylor Wimpey said completion volumes this year would be between 85 and 90 per cent of 2019 levels, which would boost operating margins to 18.5-19 per cent, towards a medium-term target of 21-22 per cent. Analysts at Peel Hunt expect to increase the £694m in pre-tax profits currently forecast for 2021 by between 8 and 10 per cent. 

However, both groups have booked provisions for fire safety improvements, which amounted to £75m for Persimmon in 2020. Meanwhile, Taylor Wimpey will incur a £125m provision for remedial work across apartments built over the last 20 years, including those below 18 metres. Currently the government has only made available funding for buildings over 18 metres, following the Grenfell Tower tragedy. 

The introduction of the stamp duty break and pent-up demand turbo-charged activity during the second half of last year: Persimmon’s average private sales rate per site ended the year 12 per cent ahead of 2019. 

Order books also stand comfortably ahead of last year, which should continue to boost completion levels and provide a buffer against any lag in demand induced by a slump in the economy. Taylor Wimpey reported a record order book of £2.8bn, while Persimmon reported an order book 15 per cent higher than it had when entering the pandemic. 

Those forward sales have been made at an average selling price of around £251,000, a 4 per cent increase on 2019. Taylor Wimpey also said it had grown sales prices across developments during the first two months of the year. 

Heightened demand has benefited sales prices across the UK. Nationwide’s house price index this week revealed a surprise bounce in sales price inflation of 6.9 per cent in February, despite the scheduled end to the stamp duty break. An extension to the tax holiday could boost sales prices further as more transactions complete in time for the deadline.  

Strong cash generation means Persimmon is set to regain its dividend crown. The group’s bumper payment of 235p a share will make a return this year, with an initial 125p return brought forward to March. Taylor Wimpey’s dividend prospects have also improved. Despite the step up in land purchasing activity, it expects to end 2021 with £500m in net cash. The consensus dividend forecast was lifted to 7.93p a share for this year.

However, major housebuilders are not without risk this year – limiting the help-to-buy scheme to first-time buyers and introducing regional sales price caps could weigh on demand. Yet shares across the sector have, unsurprisingly, rallied further since the government outlined the roadmap out of lockdown. 

Persimmon’s shares have regained almost all the ground lost following last year’s equity market crash and trade at a price/forecast NAV multiple of 2.5, leaving superior cash generation and dividend prospects priced in. Meanwhile, shares in Taylor Wimpey are valued at 1.5 times forecast NAV at the end of December, a premium to peers – such as Barratt Developments (BDEV) – that have demonstrated more resilience through the pandemic. There is better value elsewhere in the sector. Hold.

PERSIMMON (PSN)   
ORD PRICE:2,804pMARKET VALUE:£8.95bn
TOUCH:2,803-2,806p12-MONTH HIGH:3,019pLOW: 1,368p
DIVIDEND YIELD:8.4%PE RATIO:14
NET ASSET VALUE:1103pNET CASH:£1.2bn
Year to 31 DecTurnover (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
20163.140.78203110
20173.600.97255235
20183.741.09283235
20193.651.04267110
20203.330.78200235
% change-9-25-25+114
Ex-div:11 Mar   
Payment:26 Mar