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Stock Watch

Solid foundations for Persimmon share price?

Persimmon share price: a worker on a housing construction site

Since hitting a one-year peak back in June, the Persimmon share price has been on a slow move lower, as the air slowly comes out of the rebound that has been in place for most of the last 12 months.

And while Persimmon's share price is still up year to date, they've lagged its FTSE 100 peers, Taylor Wimpey and Barratt Developments. Profits and sales have been good, but they’ve been predominantly driven by the various stamp duty tax breaks, which in July started to get scaled back.

Falling Persimmon share price finds support

This anticipation of a sales slowdown may well be behind the recent slide in Persimmon's share price, which appears to have found some support at 2,834p.

The housing market has been a major part of the recent recovery in the UK economy. Some would say it’s been too much of a factor, however housebuilders have been able to thrive despite higher costs because of Covid, with Persimmon able to improve new build margins to 27.6%.

In April, Persimmon said it had made a strong start to the year, with forward sales 23% ahead of 2020 and 2019 as well. Levels of demand have been good, with the stamp duty tax breaks helping to push prices higher and drive activity.

Management optimistic after strong first half

Today’s half-year revenues came in as expected at £1.84bn, a decent increase from last year’s £1.19bn, however this comparative was affected by some end of year disruption because of the first lockdown. First-half profit after tax rose to £391.2m, putting the business well on course to surpass last year's profit number.

Average private sales are also higher, 30% higher than 2020, and 20% ahead of 2019. Completions came in as expected at 7,406, while average selling prices rose by 4.9% to £236,200, which is helping to mitigate upward pressure on the cost base. Forward sales have also been positive, up 9% on 2019 levels at £2.23bn, and up from £1.86bn in 2020.

Even with the paring back of the stamp duty tax breaks, management appear optimistic about the long-term strength of the housing market, with the company expecting to commence work on 85 new sales outlets over the second half of this year, and a similar amount in the first half of 2022, as the pipeline appears solid, subject to demand.

In a potential boost for Persimmon's share price prospects, as well as those of investors, the company said it intends to revert to its pre-pandemic practice of two payments per year for shareholder returns, with the first payment of 125p being made in early July 2022.


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