Persimmon sees FY profits 'modestly ahead' of consensus
Housebuilder Persimmon said it expected 2018 pre-tax profits to be modestly ahead of current market consensus, having benefited from new developments opened through the year.
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In its first update since it ousted its chief executive, Jeff Fairburn over his £75m bonus, Persimmon said total group revenues of £3.74bn were 4% higher as new housing revenues increased by 4% to £3.55bn and legal completion volumes increased by 406 new homes to 16,449 against 16,043 in 2017.
Forward sales at the end of 2018 were up 3% at £1.4bn after second half legal completion volumes of 8,377, which were 305 stronger than for the first half of the year, an increase of 4% as the company continued to benefit from the controversial government help-to-buy scheme which has boosted house builders by pushing up prices, according to a Morgan Stanley report in 2017.
The average selling price rose by 1% to £215,560. The company said the housing market was underpinned by robust employment levels, low interest rates and competitive mortgages.
Persimmon said it had continued with a selective approach to land replacement, being mindful of market cycle risks and economic uncertainties, including Brexit.
The company had £1.048bn in cash at December 31, down from £1.3bn after returning £732m of capital to shareholders.
Hargreaves Lansdown analyst Laith Khalaf said the shareholder "gravy train" dividends was expected to continue, and "combined with a share price that’s been battered by Brexit, Persimmon offers shareholders an absurd yield of 10% for the next two years".
"Of course, plans do go awry, and Persimmon is searching for a new CEO following the departure of Jeff Fairburn at the end of last year, which adds a quantum of uncertainty to proceedings," he said.
"That is of course dwarfed by Brexit, which looms large over the housebuilding sector, because a disorderly withdrawal from the EU would impact the UK housing market. That’s particularly the case if the Bank of England felt it had to raise interest rates to defend sterling, which would increase mortgage rates and make buying a property even less affordable, without an adjustment to house prices."
By the same token there is a lot of bad news baked into the share prices of the housebuilders, and a positive resolution to Brexit would see relief flooding this part of the market.
In the short term then, the housebuilding sector remains largely a directional bet on Brexit, though that can provide diversification to a portfolio alongside more international companies that would stand to benefit from a weaker pound.’