Persimmon profits fall 43% as construction work resumes

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Britain’s biggest house builder Persimmon said its build rate reached normal levels by the end of June and it restored its dividend to shareholders, it revealed today.

Pre-tax profits plunged 43 per cent from £509.3million to £292.4million. Revenues were also down 32 per cent to £1.19billion, from the £1.76billion it reported a year earlier, after damage inflicted by the coronavirus lockdown.

Its share price is up more than 6 per cent in trading so far today.    

Persimmon, which is headquartered in York, has seen construction levels return to what they were pre-Covid. But analysts worry the construction sector could still be impacted by a second wave of Covid-19, the end of the furlough scheme as well as Britain’s exit from the EU

Persimmon said its results had been impacted by the Covid-19 pandemic, which has seen the number of homes it built in the first half of the year fall 35 per cent to 4,900 compared with 7,584 a year earlier.

It added that with building sites forced to shut and managers scrambling to implement social distancing measures, many homes could not be completed.

However, the company is turning a corner as it announced its build rate had reached pre-Covid levels and that it could pay a dividend to shareholders.

It highlighted that its strong balance sheet meant that staff were paid in full during lockdown without the business relying on the Government’s furlough scheme.

Chief executive Dave Jenkinson said the performance was enough for the board to agree to a 40p per share dividend being paid out.

He said: ‘Taking an early decision not to take advantage of the furlough scheme for any colleagues, we maintained good momentum in the business, continuing to serve our customers, making detailed preparations for a safe return to work and, when it was appropriate, restarting our build programmes efficiently.’

Analysts were divided on the company’s future performance given the uncertainty surrounding the housing market.

William Ryder, equity analyst at Hargreaves Lansdown, said: ‘Persimmon’s decision to reinstate the dividend, even in a limited way, shows both confidence and caution. 

‘Confidence because the group thinks it can safely return cash to shareholders, caution because management clearly doesn’t think the investment opportunities are especially compelling at the moment.’

Richard Hunter, head of markets at Interactive Investor, said: ‘This year is increasingly looking to be a game of two halves for Persimmon, with the outlook rather brighter than the pandemic-hit first few months.

‘The company had previously battened down the hatches in cancelling both the ordinary and special dividends, while becoming more selective on new land acquisitions.

‘The enforced wind-down of the business during lockdown has inevitably had an impact on trading, with home completions down 35 per cent year-on-year, revenues falling by 32 per cent and pre-tax profit by 42 per cent.

‘In addition, the pandemic came at a time when Persimmon was dealing with the issues of build quality and customer service, both of which threatened to tarnish its brand.’

The housing market has recently been buoyed by the stamp duty holiday, which applies on all homes sold under £500,000, and a post lockdown mini boom.

According to website Rightmove, the property market has seen its busiest month on record with £37billion in sales agreed between mid-July and 8 August – the highest monthly total since it started keeping records.

This year is increasingly looking to be a game of two halves for Persimmon, with the outlook rather brighter than the pandemic-hit first few months 

 

Richard Hunter, head of markets at Interactive Investor

Estate agents and lenders have reported a surge in interest in households looking to move – particularly with greater space as city dwellers look for a better lifestyle in the country as city offices remain mainly closed.

These trends are also reflected in Persimmon’s results. 

Sales of private homes since the start of July have jumped 49 per cent year on year, with a current forward order book of £2.5 billion – up 21 per cent on last year.

Jenkinson, who is set to leave Persimmon at the end of the year, said: ‘Our strong opening work in progress position and excellent build rate through the summer give us confidence in a positive second half out-turn. 

‘We expect that by the end of September, we will have delivered (circa) 45 per cent of our anticipated second half new home legal completions.’

A second wave of Covid-19 and other global macroeconomic factors could however derail the UK housing market boom as well as Persimmon’s performance.

Hunter warns: ‘A second wave of Covid-19 could potentially provide an unwelcome echo of previous months, while the recessionary environment in the UK may deter house buyers from entering the market at the current time.

‘Equally, the end of the furlough scheme could add to the consumer’s caution in spending generally, while the terms of the UK’s exit from the European Union might not only impact economic sentiment, but could also have more practical ramifications, such as the effect on the company’s supply chain.’

Last month it was reported that Jenkinson sold £1.3million stake in the business. He will be leaving at the end of the year and is set to be replaced by National Express boss, Dean Finch.

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