- Higher house completions and higher sale prices mitigated cost pressures in 2021
- Rising interest rates and removal of government support could dampen housing market in the coming year
Persimmon (PSN) managed to pass on rising costs of raw materials and labour to new homebuyers, pushing pre-tax profits up by 24 per cent in 2021. This gave the shares a welcome 5 per cent lift on results day, but they still remain a good 15 per cent below their year-open as the prospect of a new government levy and general gloomy sentiment weigh on the sector.
The construction company has already set aside £75mn to fix unsafe cladding on its buildings, which has so far made no difference to the high-yielding stock’s dividends, with two distributions planned for the first half of 2022.
Persimmon took advantage of pent-up demand for housing, completing 7 per cent more homes in the year to the end of December, although still below pre-pandemic levels. A 3 per cent rise in its average house price to £237,078, coupled with prudent bulk-buying of materials for its own tile, brick, and timber factories, stopped mounting cost pressures from hitting margins.
Chief executive Dean Finch said he anticipates “increases in selling prices will mitigate build cost inflation” as the firm targets 4-7 per cent volume growth in 2022.
Trickier times lay ahead for housebuilders. Rising interest rates and a growing cost-of-living squeeze could soon push record-high house prices into reverse, with government support for the housing market also coming to an end, notably the already-done stamp duty holiday and the Help To Buy scheme, which ends next March. However, it is certainly possible that further government interventions will be forthcoming.
Liberum reiterated Persimmon’s ‘buy’ rating, noting that while the housebuilder is trading on a 60 per cent premium to book, it is justified by its return on equity and “very strong balance sheet”.
We advise caution. Persimmon’s £2.21bn forward sales position at the start of the year provides a useful buffer for now, but a likely swing back towards more affordable housing may start to bite later. Hold.
Last IC View: Buy, 2,798p, 18 August 2021
|ORD PRICE:||2,431p||MARKET VALUE:||£7.76bn|
|TOUCH:||2,429-2,432||12-MONTH HIGH:||3,272p||LOW: 2265p|
|DIVIDEND YIELD:||9.7%||PE RATIO:||10|
|NET ASSET VALUE:||1,136p||NET CASH:||£1.2bn|
|Year to 31 Dec||Turnover (£bn)||Pre-tax profit (£mn)||Earnings per share (p)||Dividend per share (p)|
|NB: First dividend payment of 125p per share will be made on 1 April 2022 (rather than July 2022 as was originally indicated)|