Shares in housebuilding firm Persimmon (PSN) nudge 1.6% higher to £24.82 on a strong set of first half results.
Although there were few surprises after a pretty extensive trading update was released in July, those that there were, were largely positive. Notably margin performance was slightly better-than-expected.
The improvement in profitability implies tight control on costs, with average selling prices up a little more than 1%.
AJ Bell investment director Russ Mould says: ‘Margins are a key focus for the market, given the housebuilding sector is faced with slowing house price inflation and an increase in build costs.
‘The 2.1% year-on-year improvement in Persimmon's margin is impressive but the increase is just 0.9% on the second half of 2018.
‘There also appears to be a subtle shift in the language in the accompanying outlook statement. A year ago words like 'confident', 'strong' and 'encouraging' were thrown around with more abandon.
‘Now the emphasis is on 'good' levels of interest and a 'robust' platform. Nevertheless, the company says it can continue to grow sustainably and can adapt to changes in market conditions. Time will tell.’
A DIFFERENCE OF OPINION
Shore Capital analyst Robin Hardy, who is a seller of Persimmon, says: ‘The house builders do face a tougher time ahead without the benefit of high house price inflation (the average for all housing since 2013 has been +5.5% per annum and new homes has been higher than this) and this is still expected to begin to drag on margins.’
Canaccord Genuity’s Aynsley Lammin is significantly more positive, reiterating his ‘buy’ call and a £29.50 price target. He says: ‘Clearly, fears around Brexit and macro worries may continue to hang over the sector; however, with a c.10% committed yield and strong operational performance, the shares look very attractive trading at the bottom end of their 12-month range assuming the new housing market holds up as we expect.'
