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Persimmon: dividend set to drop as conditions deteriorate

The listed housebuilder had a bevy of bad news for investors in its trading update, including far-higher cladding costs
November 8, 2022
  • Dividend predicted to fall
  • Cladding costs jump to £350mn

Shares in housebuilder Persimmon (PSN) dropped 6 per cent as post-Grenfell cladding costs soared more than fourfold and analyst Jefferies warned of a “significant step down” in dividend payments due to a worsening trading outlook. In the past six weeks, the builder has seen its cancellation rate go from 21 per cent to 28 per cent, which it put down to the "deterioration in market conditions". 

This comes at the same time as the estimated cost of cladding remediation and fire safety on Persimmon's buildings has leapt to £350mn – quadruple the £75mn it had told investors it would cost in its half-year results in August. It said that the cost surge was due to “a broader scope required by government” and “a background of significant build cost inflation”.

That broader scope comes alongside a change in personnel at the housing department. At the end of last month, Michael Gove was reappointed as housing secretary after having been sacked by the outgoing former prime minister Boris Johnson a mere four months ago.

The government’s stance on cladding over the years has been inconsistent in large part because of this rapid turnover. Gove, who becomes the seventh housing secretary since 2018, has a reputation in the industry of being tougher on the issue than his predecessors.

In its update, Persimmon also announced that “ordinary dividends will be set at a level that is well covered by post-tax profits” which Jefferies said implied a "significant step down in payments” as trading conditions for housebuilders worsen.

House prices are predicted to nosedive as rising interest rates have shrunk buyers’ budgets. Last week, property agency Savills (SVS) predicted a 10 per cent drop in prices next year while fellow agency Knight Frank is predicting a 10 per cent drop over the next two years. Credit Suisse and Capital Economics have both forecast a fall of between 10 and 15 per cent.