Persimmon – building towards a better 2024
Aarin Chiekrie, equity analyst, Hargreaves Lansdown: “Although the near-term outlook for Persimmon remains uncertain, the significant pent-up demand for homes remains unchanged. Persimmon’s average weekly sales rates fell around 16% in 2023, as high interest rates and the removal of the Help-to-Buy scheme have weighed on buyer affordability. As a result, total completions of new homes dropped by around a third to 9,922. These lower volumes, coupled with high levels of build-cost inflation, saw operating profit margins roughly halve. This impact would have been worse if it weren’t for the group’s in-house materials business, which is a key differentiator to peers and offers some relief to inflating costs. Despite the difficult trading backdrop, there was a strong finish to 2023, with fourth-quarter sales rates showing signs of improvement.
Heading into 2024, there have been more positive signs. Easing mortgage rates, lower build-cost inflation, real wage growth and some strong responses to marketing efforts mean that Persimmon’s starting the new year out on the right foot. The group’s extensive landbank, which is one of the largest compared to peers, is another key strength. That means there’s less pressure to go out and buy new plots, at a time when land prices are yet to fully reflect the uncertain housing market. While it may be a while before this happens, whenever the market does turn, Persimmon has the land to hike volumes quickly and benefit from the uplift.”
