Housebuilder Persimmon (PSN) updated the market on first quarter trading on Wednesday and the early concerns of investors appears to be subsiding. At 10am the shares are trading 0.4% off at £22.28 having initially sunk more than 2% to £21.87.

This bounce arguably reflects emerging relief that, unlike some of its peers, it is not seeing an acceleration in build cost inflation.

But this implied boon could prove short-lived with the company beginning to take action to address concerns, particularly around threats over its right to sell homes under the Help to Buy scheme.

Already the company is seeing some pressure on sales from its plan to sell homes later in the build process to offer purchasers more certainty on moving in dates.

Year-to-date its weekly private sales rate per site is down 5%. Persimmon says its current forward sales position is 'strong' with total forward sales revenue, including legal completions taken to date in 2019, of £2.7bn, down from £2.8bn on-year.

Pricing conditions remained stable, with the average selling price of sales to the private market in the forward order book being around £237,850, compared to £236,500 on-year. Build cost inflation is also steady at 4%.

WHAT THE EXPERTS SAY

AJ Bell investment director Russ Mould says: ‘Persimmon needed to make changes after its controversial bonus scheme, coupled with complaints over leasehold terms and build quality led to a threat it might lose its right to sell homes under the lucrative Help to Buy scheme.

‘And now a new BBC investigation has revealed houses developed by both Persimmon and its rival Bellway were sold with incorrectly installed or missing fire barriers.

‘The response could well include spending more to improve the quality of its homes which could have a further impact on profitability. Though if such action puts the business on a more sustainable footing, it could ultimately be a price worth paying.’

Canaccord Genuity analyst Aynsley Lammin says: ‘Overall this is a reassuring update and very much in the context of a push by the group to focus the business on customer care and service.’

Shore Capital’s Robin Hardy says: ‘Persimmon is running a root and branch review of the ‘customer journey’ which we would also expect to lead to higher, permanent costs but the levels are uncertain.

‘We are concerned that Persimmon has lowered its build costs too far (they have dropped to much lower levels than the other national house builders) and that it will need to put additional cost back into its homes but that this will not be recoverable through the sales price.’

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Issue Date: 01 May 2019