Persimmon’s full-year numbers released this week prove the point. It’s generating – on our calculations – a 31 return on capital employed (ROCE) – usually, a figure closer to 20 or even 15 per cent would catch our eye as investors. Indeed, even a 10 per cent ROCE is considered a good effort. Its operating margin on housebuilding stands at over 30 per cent, more than doubling since 2013. That pushed last year’s pre-tax profits up 13 per cent to more than £1bn, which by coincidence is also the amount of net cash that currently sits on its balance sheet.
Its executives have, controversially, been handsomely rewarded for the progress that the company has made over the past five years. But shareholders really don’t have much to complain about – they, too, have shared in the spoils, receiving 720p a share under the group’s capital return plan since 2013, with a further 580p to come by June 2021, including this year’s 235p dividend – equating to a prospective 2019 yield approaching 10 per cent. To put those cash returns into context, you could have bought the shares for 800p at the start of 2013, since when they’ve trebled.
The trouble with numbers as good as these is that they often lead to uncomfortable questions about just how it is that a company providing what many working people see as a public right – a comfortable and affordable home – can be making so much money, in Persimmon’s case more than £66,000 on every £215,000 home sold. Some may argue that Persimmon is a private company free to make as much money as it likes – but it’s quite clear that the upswing in housebuilders’ fortunes have coincided with the Help to Buy scheme, which many critics view as a form of crony capitalism that allows taxpayers’ money to be turned into excessive corporate profit.
So far, though, the industry has been largely able to swerve these concerns, partly because the government is utterly dependent on a few large housebuilders to meet its housing targets, which in turn underpin a significant portion of the country’s economic activity – not so much cronyism as having a gun held to its head. But a reckoning may now be coming. Housing minister James Brokenshire said last week that he was “concerned” about Persimmon’s use of the Help to Buy scheme, and there are rumblings that it could lose access to Help to Buy – small wonder that it devotes much of its annual release to describe its positive impact on society, such as creating school places and delivering jobs. Yet with such incredible financials, few governments could surely avoid the temptation of asking for a lot more. And it will eventually be shareholders who pay.
