Persimmon slashes dividend as sales slump

Faced with the prospect of receiving just a quarter of the dividends they received last year, investors promptly marked shares in Persimmon (PSN)9 per cent lower on the morning of its full-year results. The move shows the housebuilder is not particularly confidentabout the next 12 months, putting the cut down to “prevailing market conditions” and plans to reinvest the money into “future growth”.

Doing so will amount to a decent saving. Persimmon spent £750mn last year on handing money out to shareholders and a similar amount the year before. But that was then. Back when low interest rates meant house prices were going up and the Help to Buy scheme accounted for a fifth of its sales.

Now, things don’t look as rosy. Forward sales by value are down 31 per cent compared with the same point last year. Forward sales by volume picked up for the first eight weeks of the year when compared with the final quarter of last year, but house sales often pick up after Christmas and they are still down 45 per cent compared with the same period last year.

The company is preparing for a prolonged period of subdued activity. If current trading conditions continue, it expects the number of completed homes this year to plunge to somewhere between 8,000 and 9,000 compared with over 14,000 in both of the previous two years. It says that it intends to “continue to invest in land in a targeted and disciplined way, when we judge the timing is right”, adding that cost inflation is running at around 8 per cent while sales incentive costs are also up 3 per cent.

This is not a business in high-growth mode and there are few signs it will become one over the next year.

In the wider market, Help to Buy is ending this year, house prices are falling at their fastest rate in a decade (faster than economists had expected), and the government’s competition watchdog has launched a probe into housebuilding a mere four years after it launched its still ongoing investigation into leasehold mis-selling in the sector.

On top of this, there could be more post-Grenfell fire safety costs to come over the next three years after Persimmon spent £275mn on cladding costs last year. The situation may yet improve, but not in the short or medium term. Sell.

Last IC view: Hold, 1,799p, 17 Aug 2022