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Upbeat guidance unable to help Persimmon share price

Two homes under construction

It’s been one-way traffic for the Persimmon share price this year, with the shares down 35% year-to-date, despite a reasonably robust housing market and little sign that demand for its properties is slowing.

Today’s first-half numbers haven’t told us anything we didn’t know before, given the pre-close update a few weeks ago, with the housebuilder confirming that it had sold 6,652 properties in the first half at an average selling price of £245,600, up from £236,200 a year ago.

Completions and revenue fall

The industry is certainly facing challenges, however despite the lower amount of properties sold compared to last year, gross margins improved to 31%. The lower level of completions has seen total revenues decline, falling to £1.69bn from £1.84bn a year ago, while profit-before-tax came in at £439.7m, down from £480.1m a year ago.

It is apparent that rising costs and energy prices are proving to be a challenge, and that for the most part Persimmon has shown that it has been able to pass some of these costs on, while the forward order book position is also higher than a year ago, at £2.32bn, currently 90% sold.

All so far so good, however there are dark clouds on the horizon and it is starting to show in the guidance, with average private sales in the first seven weeks of the second half down by 11% from a year ago.

Persimmon share price chart year-to-date

(Source: CMC Markets)

The housebuilder continues to target 10% growth in outlets by the end of the current year, however this could prove challenging, given that CPI inflation in July posted a new record high of 10.1%.

Persimmon shares slide again on outlook concerns

It won’t just be the housing sector, the whole UK economy is facing a challenging second half of this year from higher mortgage rates, while banks are likely to be a lot more careful when it comes to its lending practices, assuming of course anyone wants to go to the expense of moving house.

This morning’s higher-than-expected CPI print is likely to see the Bank of England raise rates by another 50bps next month, further raising costs for those on variable rates, while further uncertainty about rising energy bills and other prices could well start to crimp demand.

While management has remained optimistic about the outlook for all of this year, investors appear to have other ideas if the weakness seen in Persimmon's share price so far this year is any guide, with the shares falling further in the opening minutes of trade.

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