A trading update from the UK’s second largest housebuilder Persimmon (PSN) offers more of the same as robust housing demand drives 2017 strong revenue growth and there is guidance for pre-tax profit to be slightly ahead of consensus expectations.
Forward sales are up 10%, revenue 9% higher at £3.42bn and average selling prices up 3% to £213,000.
However, the shares are 2% lower at £26.92 as the company sounds a cautious tone on the ‘market risks including those associated with the uncertainty arising from the UK leaving the EU’.
The update also does not address the controversy over executive rewards.
The group’s chairman Nicholas Wrigley resigned in December as he admitted a bonus scheme which puts chief executive Jeff Fairburn in line to receive more than £100m was poorly designed. Perhaps this issue will be tackled when the group reports its 2017 results in full on 27 February.
Shore Capital analyst Robin Hardy has a ‘sell’ recommendation on the stock. He highlights concerns over future margin performance.
‘The housebuilders face stiffening headwinds in 2018 we believe and we have already seen from the Halifax and Nationwide house price indices that the current rate of house price inflation is essentially zero.
‘With the sector needing 2%-2.25% to recover costs and hold margins, we believe that it will become more difficult to support a consensus in which it is widely assumed that margins can continue to expand.’
Canaccord Genuity analyst Aynsley Lammin is more bullish despite conceding the valuation is ‘relatively full’. He reiterates his ‘buy’ take and £28.70 price target.
He comments: ‘The next significant catalyst will be how the spring selling season performs in 2018; but the group is very well positioned to deliver another solid performance in 2018 assuming sales rates hold up.’
