Persimmon’s cool down continues as the group revealed a mixed set of first-half numbers this morning.
Despite reports that house prices are falling in some pockets of the county, Persimmon’s average selling price was £240,000, which was an 11.2% increase on the year. New houses sold dipped by 6.04% to 7,584, and revenue for the six-month period dropped by 4.4% to £1.754 billion. Underlying operating profit edged lower by 1.6%. The group’s forward sales ticked lower, and to make matters worse, cost inflation is tipped to be roughly 4%.
Persimmon share price falls from 2018 highs
With figures like these, it’s no wonder that the Persimmon share price has retreated from the all-time high that was achieved in June 2018. It’s clear the days of monster profits in the housing sector are over, but it’s worth remembering how far the company has come, as net income might have slid on the year, but it’s still more than double the 2014 level.
Persimmon’s help to buy status under threat
The Persimmon share price took a knock in February when it was revealed that it might lose its ‘help to buy’ status. The government scheme is aimed at helping first-time buyers onto the property ladder, and the initiative greatly helped the group. A series of complaints about the quality of the homes prompted the government to consider revoking Persimmon’s help to buy permissions, and there is a possibility the firm might not be able to take part in the scheme beyond 2021.
Last month, the group stated that it’s more focused on quality over quantity, and it seems like this was a reaction to the complaints it received. It’s in their interests to remain a part of the help to buy scheme, so the group needs to regain its respectable reputation. At the same time, the boom is over in the house building sector for now, so a slight taper-off in the number of properties built wouldn’t be a terrible thing. So this does seem like an ideal time to focus on quality over quantity, which could help the Persimmon share price in the long run.
The trading statement in early July was varied, as average selling prices edged up, and legal completions and revenue slipped. The group said it expects full-year operating margin to be 30.8%.
There is some evidence that UK house prices across the board are cooling, and that is partially because the market was overstretched to begin with, and the uncertainty in relation to Brexit has compounded the issue too, as some people are playing the ‘wait and see’ game. Prices in some parts of the country might be drifting, but materials and labour costs remain high and that is a concern for the industry too.
So the company is facing a number of challenges at the moment, and these are reflected in the half-year results and in the Persimmon share price.
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