Strong trading updates from housebuilders Persimmon (PSN) and Galliford Try (GFRD) have been met, if not with indifference, then certainly with only tentative approval. The market's response to a bullish trading update from Persimmon is somewhat muted with shares edging 1.5p higher to £12.95.
The Fulford-based housebuilder was able to tell investors it finished the year strongly but perhaps the biggest takeaway from the £3.9 billion cap's last update before full-year results (25 Feb) was its ability to raise construction volumes significantly in response to rising weekly sales. Persimmon increased the volume of new house sales delivered to 11,528 for the year, 16% ahead year-on-year. In the second half of 2013, the group completed 6,506 new homes, an increase of 30% over the first half, while second half sales volumes were 25% ahead of the prior year.
Good news at the sales end of the business is being buttressed by ongoing progress in growing the all-important landbank. Persimmon informs investors that 17,600 plots of new land were acquired during 2013, representing a replacement rate of 153% of current consumption. Private sales rates remained robust in the second half and encouragingly, the total value of forward sales at 31 December 2013 was 41% ahead of the prior year at around £908 million. In addition, the number of reserved and exchanged private sales carried forward into 2014, at over 3,000 new homes, was around 55% stronger year-on-year.
Persimmon's cash position remains strong despite increased investment in both land acquisition and scaling up its building activities to meet demand, with £204 million cash in the coffers as of 31 December. Dublin-based stockbroker Davy notes that 'while there has been no detailed guidance provided on 2014 as yet, the company is well positioned for continuing growth into the current year'.
Rival builder Galliford Try's shares are up 5p at £12.09 on news it expects to report record half-year profits to December next month (19 Feb). The Uxbridge-based business flags a continued strong performance and both rates of sales and prices above expectations. The £985 million cap's housebuilding business is firing on all cylinders while its construction business continues to perform well against a challenging backdrop of early cycle recovery and increasing margin pressures. The construction arm remains well-placed however, with high visibility of earnings.
If anything might give cause for concern, it is the group's rising debt which is a corollary of the group's ambitions in landbank growth. However, with net debt of £90 million – up from £58 million in 2012 – this still looks like manageable leverage.