Persimmon LSE:PSN, the FTSE-100 listed UK housebuilder, published a trading statement this morning, that covered the period from 1st July to 7th November 2022.
As previously reported the company was expecting a good mid-quarter as across the board UK house prices rose strongly. However, during the quarter the economy had to deal with the shock of the Truss-Kwarteng mini-budget which sent borrowing rates on a rollercoaster-ride, and affected the ability of many first-time buyers to get a mortgage.
Further economic news, including the Bank of England’s cheery forecast of an upcoming two-year recession, further affected consumer confidence and slung a millstone around the collective neck of the UK residential property sector. In a country where an Englishman’s home is his castle, Persimmon acts as a bellwether of the health of the economy.
Strong and healthy
Dean Finch, the York-based builder’s chief executive put on a brave face. He said in a statement this morning: “Persimmon entered 2022 in a strong position with healthy forward sales and good weekly sales rates which continued throughout the first half of the year. This, together with our increasing levels of build efficiency, means we are well positioned to deliver new home completions for the year within our previously stated target range, while maintaining an industry-leading housing margin, despite the recent deterioration in market conditions leading to increased cancellation rates.”
However, the numbers told a slightly different tale. In terms of output, the company reported it was 20% ahead of the build rate on a year-on-year basis and was on track to deliver a full-year 2022 volume target of between 14,500 to 15,000 homes, despite some increased risk from recent elevated cancellation rates.
The company also highlighted its customer satisfaction numbers. Persimmon in the past has been accused of poor service and poor build by customers. This quarter Finch was please to say that the company had a five-star rating with customer satisfaction being around 90%. The company also invested in its land bank, spending GBP590m in the period, up from GBP370m in the corresponding period of 2021. The company said that it had committed another GBP115m to land acquisitions in the rest of the year.
Sales cancellations
However, the good news kind of stopped there. Finch stood by the guidance that the housebuilder would sell between 14,000 and 15,000 new homes this year, but reported that its rate of cancelled sales rose to 28% from 21% in the last six weeks as rising interest rates made mortgages more expensive and introduced “uncertainty” in the market. Finch also noted that the Help-to-Buy scheme, a programme the government introduced to help first-time buyers to get on the housing ladder, had come to an end, which had contributed to 20% of sales in the year. Finch said that Persimmon’s “unique value proposition” would provide the special sauce that would see the company through an “uncertain market.”
The company noted that inflation was starting to eat into its margins, having experienced between 8% and 10% inflation on materials during the period, something Finch said was part-mitigated by higher sales prices.
Liquidity
Persimmon’s financial position and liquidity remain strong the statement said. The company expects to end the year with around GBP700m in cash in the bank – down from GBP782m in June 2022 (after a GBP750m capital return paid in during the year.Finch concluded: “During the third quarter of 2022, we entered a period of heightened market uncertainty, with rising interest rates and inflation balanced with continued high levels of employment. While we have already seen mortgage providers and customers start to adapt to higher interest rates, the full impact of this uncertainty on consumer behaviour is yet to be determined. We have good visibility on our outlet pipeline and we anticipate our outlet numbers will remain broadly in line with the current position throughout 2023.”
The company opened trading today (8th November) at 1,323p and had fallen to 1,220.3p within the first hour. The company has offered a -57.3% year-to-date return, with a -54.5% one-year return. Its shares have ranged between 1,113.5p and 2,930p over a 52-week period and the company has a market capitalisation of GBP4.2bn.