Persimmon – robust foundations despite much lower volumes
Aarin Chiekrie, equity analyst at Hargreaves Lansdown: “Despite the difficult and uncertain trading backdrop, Persimmon’s valuation’s been on the charge in recent months. New home completions came in ahead of group expectations in 2023 but were still down by a third on the previous year. Alongside an increased use of incentives, these lower volumes mean there’s much less cash coming in the door. In a bid to keep the cash coffers in reasonable shape, investment in new land has been reigned right back – something we expect to continue in the near term, given the group’s healthy land bank.
Market forecasts are suggesting a 35% fall in revenue for 2023. Coupled with the effect of lower volumes and build cost inflation remaining more stubborn than the group had anticipated, operating profit margins look set to roughly halve year-on-year to around 14%. While that’s not ideal, it’s a picture that’s largely being repeated across the sector. Investors need to keep in mind that housebuilders are cyclical businesses that go through periods of ups and downs. Persimmon’s in-house materials business is a key differentiator though, giving it quicker and cheaper access to key materials and offering some relief to inflating costs. Still, the near-term outlook remains challenging, and it could be a while before we see a step change improvement in buyer confidence across the housing market.”
