Persimmon’s share price has dropped heavily over the last 12 months amid the cost of living crisis, as reflected in last week’s trading update, but it rose 7% last week on hopes conditions might ease. The housebuilder was also boosted after the approval for a new development, while also launching schemes to help attract buyers.
The Persimmon [PSN] share price has been on anything but a solid footing over the last 12 months, but amid the pervading economic doom and gloom reflected in last week’s trading update, the FTSE 100-listed stock received a welcome boost after the approval for a new development in Tewkesbury.
The housebuilder has also launched schemes to help both new and existing homeowners, including a mortgage-free offer, as it bids to counter the tightening squeeze on first-time buyers, as soaring inflation, interest-rate hikes, and mortgage-rate rises through last year helped fuel the cost of living crisis.
The company remains optimistic on its long-term prospects, but acknowledged the current difficult conditions in last week’s trading update, following a downbeat performance update in November, with forward sales and prices feeling the pinch.
How's the Persimmon share price been performing?
After the housebuilder’s 8 November trading update prompted an intraday slide of 9.30% – before the shares closed down 5.22% on the day at 1,254p – Persimmon stock has since rebounded, climbing 16.74% over the last month, and 6.87% last week to 1,416p, as hopes rise that inflation will ease, and mortgage rates will fall.
Housebuilders, including Persimmon, also got a boost in December after the UK government extended its mortgage guarantee programme – which offers guarantees to lenders so they can provide 95% mortgages on properties worth £600,000 – by a year.
Persimmon shares have moved 27.17% above the 52-week low of 1,113.50p set on 12 October last year, but remain significantly lower year-on-year. The stock has plunged 45.07% over the last 12 months, and is down 57.11% from the 20 January 2022 52-week high at 2,596p.
Pressure intensifies on Persimmon
The housebuilder completed 14,868 new homes in 2022, which came in at the top end of its guidance, and was up 2% versus 2021. The average selling price also rose, by 5% to £248,600.
On the flip side, CEO Dean Finch acknowledged the “change in market conditions gathered pace in the fourth quarter and is reflected in the reduction in our recent weekly sales rates and a lower forward sales position”.
Overall, private net sales per outlet per week was 0.69 for 2022, versus 0.83 a year earlier; however in Q4 this fell to 0.30 (versus 0.77), and sunk to just 0.19 in the last seven weeks against 0.61 in 2021. Finch however, remains bullish on the longer-term prospects, saying "Persimmon is well placed to navigate this challenging short-term backdrop … [and] the longer-term demand for new homes remains strong.”
Despite painting a weak demand outlook for the rest of 2023, CMC Markets analyst Michael Hewson says “it could be argued that a lot of negative news is already priced in, with falling US inflation numbers pointing to optimism that some of the worst-case scenarios might be avoided”. The news helped Persimmon shares rise to the top of the FTSE 100 leaderboard on Thursday last week.
Persimmon aims to entice buyers after securing new development
Persimmon has secured the green light for a new development in Fiddington, near Tewkesbury, reports insidermedia.com, which includes apartments, terraced, semi-detached and detached new homes.
The housebuilder has also unveiled a scheme in the south-west region, designed to help customers with the affordability of a new home. Persimmon will cover up to 10 months’ mortgage payments for buyers who reserve a new Persimmon home by 31 January. With half of all Persimmon customers being first-time buyers, the company will be hoping for a boost from the initiative.
A separate offer aims to support those looking to sell their existing property, with a 105% part-exchange scheme, meaning customers can save money on fees and benefit from an extra 5% on their valuation.
What’s the analyst view on Persimmon stock?
The current tough economic conditions are likely to add to the pressure on profit and sales, and may hit dividend payouts. As Russ Mould at AJ Bell says, “a hefty cut can’t be ruled out as Persimmon looks to cut its cloth to fit more straitened circumstances”.
Quilter Cheviot analyst, Oliver Creasey, pinpointed the difficult environment faced by housebuilders as consumers battle the cost of living crisis, saying last week that “demand, or more specifically affordability, appears to have fallen off a cliff”. There is a ray of light though, according to Creasey, who added that “mortgage pricing and availability appears to be improving slightly”.
Among the 14 analysts offering 12-month price targets on Persimmon, the median target is 1,380.00p, with a high estimate at 1,650.00p, and a low estimate of 1,117.00p. The median estimate represents a possible downside of 2.54% compared with Friday’s close at 1,416.00p. Analysts polled by the Financial Times on 12 January are split on their outlook for Persimmon shares, with one ‘buy’, four ‘outperform’, 10 ‘hold’, one ‘underperform’, and no ‘sell' recommendations. Overall, analysts rate the stock a consensus ‘hold’.