York’s Persimmon (PSN), the UK’s second largest housebuilder by volume, puts the sector on the front foot as it says profit for 2016 will be at the top end of expectations.
STRONG SALES
Its own shares rise 4.1% to £18.85 as it reports sales up 15% year-on-year since the vote for UK to leave the European Union in June with full year revenue up 18% as expected to £3.14bn. The announcement restores some confidence after rival Bovis Homes (BVS) was forced to issue a profit warning on 28 December thanks to a weak performance in the last month of 2016.
Persimmon warns that it will be hard to replicate this performance in 2017 and points to tough comparatives with the first quarter of last year when the prospect of an April increase in stamp duty property tax encouraged some buyers to bring forward their purchases.
HANDSOME RETURNS
Liberum analyst Charlie Campbell reiterates his ‘buy’ recommendation and £19 price target. He says: ‘We like Persimmon for its high dividend at low risk, and are confident that the company will achieve the payments pledged because of the management’s incentive scheme.
‘Additionally, its long landbank means it could cut land spending entirely to boost cash flows, and the strategic landbank may continue to boost margins too. Northern areas have much better affordability than the south, which may mean better pricing in a weaker environment.’
Campbell expects Taylor Wimpey (TW.) and Barratt Developments (BDEV) to echo Persimmon’s positive tone when they update on 11 January and 12 January respectively. He does warn of short-term risks for the industry relating to the triggering of Article 50 (formerly commencing the Brexit process) and the impact on house prices of a slowing economy.
