Management has recommended a 40p a share payment after average weekly net reservations per site jumped by almost half since the start of July and the forward order book rose by a fifth. That makes it the second housebuilder, after Berkeley (BKG), to recommence shareholder returns. Management is keeping the decision to reinstate the 110p final dividend under review.
Second-half completions - around 45 per cent of which should be completed by the end of September - are expected to be at least in line with the same period last year. That stands to be a dramatic turnaround on the first half, when lockdown caused completions to plummet more than a third and caused pre-tax profits for the period to drop 43 per cent. But house prices have remained firm, with the average sales price actually rising almost 4 per cent to £225,000.
The group has been a huge beneficiary of the government’s help-to-buy scheme, which was used by customers purchasing just over half of the private homes sold during the first half. That has pumped-up completion volumes and led to sector-leading operating margins which, even after coronavirus-induced disruption, came in at 26.6 per cent on new housing.
Admittedly, Persimmon’s more affordable average price point means it will be less affected than some peers by restrictions to the help-to-buy scheme that are due to come into effect next year. The average sale price of homes it sold across the UK during the first half was comfortably below the caps that will be put in place for each region from April and it also sells a high proportion of its homes to first-time buyers, the only group permitted to participate under the new regime.
Pent-up demand, combined with the stamp duty sugar rush, has provided an inevitable surge in activity across the market, but this is not likely to last. A net balance of 26 per cent of chartered surveyors expected a rise in sales prices over the next three months, according to the Royal Institution of Chartered Surveyors July survey. But that turns to a negative 10 per cent when asked about the prospect for house prices over the next year.
Persimmon cannot escape the inevitable rise in unemployment that is coming down the track, which could well bring a rise in forced sellers and put pressure on sales prices, or at the very least dampen transaction volumes. In a market where prices are falling, housebuilders will have less incentive to churn out new homes, which would result in lower cash generation.
Investors may want to temper expectations of a return to the norm over the medium-term, and the generous dividends that went with it.
