The Persimmon share price is likely to push higher this morning as the company revealed a modest interim dividend of 40p.
Admittedly, the payment is small and it’s a big drop from 125p – last year’s interim dividend, but it sends out a cautiously optimistic message to the market. In March, the group cancelled the interim dividend and it postponed the final pay-out too, so today’s news is a step in the right direction. Housebuilder Persimmon will closely review further dividend payments for this year, so that will be the focus of traders’ attention in the months ahead.
Dividend restored despite fall in profit
First half pre-tax profit tumbled to £292.4 million from £509.3 million last year. The slump in earnings is not a shock seeing as construction work was stopped due to the pandemic – house completions stood at 4,900, down 35% on the year. New housing gross margins cooled from 33.8% to 31.3%. The current forward sales position is healthy as it is £2.483 billion, which is a 21.2% increase on the same period last year, so Persimmon is busy in the near-term.
Last month, the company issued a trading update for the first six months of the year, the Covid-19 crisis caused disruption to the way firms revealed their figures. First half revenue was £1.19 billion, which was a 32% drop on the year. Average selling prices rose by 3.7% to £ 225,050. The order book increased by 15% on the year to £1.86 billion. The relatively robust order book offset the sharp decline in revenue. It has been a common theme for the house building sector, whereby there was disruption to construction activity, but work appears to have been pushed back until next year. The economic climate is uncertain due to the pandemic, but the group confirmed that cancellations were at historic lows.
Rishi Sunak, the chancellor of the exchequer, has provided assistance to the housing sector. The stamp duty threshold has been temporarily lifted from £125,000 to £500,000, and that should help Persimmon since its average house price is roughly half that of the new threshold.
Persimmon share price recovers as housing demand grows
The re-opening of economies around the world has released pent-up demand, and the British housing market is no different. Yesterday, Rightmove revealed that transactions hit a record high between mid-July and early August. The property portal said that house prices jumped by 4.6% in August on a yearly basis. Earlier this month, according to Halifax, prices in July increased by 3.8% on the year to £241,604 – a record high. It is possible the positive sentiment in the market is just down to the fact things were effectively on hold for several months. The acid test will be whether demand holds up in the months ahead, especially seeing as the furlough scheme will end in October and the unemployment rate is likely to jump.
The Persimmon share price hit a record high in mid-February, just before the pandemic took hold in Europe, and then it sold-off aggressively for four weeks. It has managed to recoup roughly 60% of the ground it lost on account of the health crisis.
Persimmon’s share price has been in an upward trend for five months and if the bullish run continues it might target the 3,000p zone.