01 March 2023
If you are covering Persimmon’s annual results, please see the following comment from Oli Creasey, equity research analyst at Quilter Cheviot:
"Persimmon’s results this morning show good figures for 2022 – with completion volumes close to 15,000 homes, an average sales price up 5% year-on-year, and a healthy operating margin of just over 27%, it looks like a good year (and has previously been guided as such).
"However, it has also been previously made clear that since Q4’22, the housing market was in a new era, with soaring mortgage rates having an immediate impact on would-be buyers of new homes. At the back end of last year, Persimmon reported a very low completion rate (measuring house sales per outlet per week) of 0.19x, approximately 75% lower than would occur in “normal” times.
"The good news for Persimmon is that the sales rate figure has rebounded somewhat, at 0.52x for the first two months of 2023 (approximately half of normal volumes). While still heavily depressed, volumes are clearly improving, and Persimmon’s experiences are in line with those reported by other housebuilders. Perhaps more importantly, the trend in the industry has been for volumes to improve incrementally through the first weeks of 2023, so the most recent sales rates are likely to be above the YTD average.
"Persimmon is exercising caution, which is probably appropriate in the circumstances. While not providing guidance as such, management have indicated that if the current sales rate were to continue for the whole year (a conservative approach in our view), then completions would fall to 8-9,000 homes for the year (-43%), and the company operating margin might fall by approximately -13% (around half the 2022 figure). That would be very painful, but is a) a conservative set of assumptions, and b) testament to Persimmon’s financial discipline, able to maintain a double-digit operating margin in challenging conditions.
"The company previously signalled a dividend cut late last year, the details of which have been announced today. Seeing the distributions reduced to 60p (-75% vs 2021) is disappointing but is a reset to an affordable figure – even in tough trading conditions, this will be more than covered by EPS – and leaves room for growth. It is also approximately in line with analyst expectations. Management have indicated that excess earnings will still be distributed via special dividends or buybacks."
