13 January 2022
If you are covering Persimmon’s latest trading update, please find below a comment from Oli Creasey, property research analyst at Quilter Cheviot:
“Persimmon’s latest trading statement provides mixed results. Completion volumes were slightly below guidance of 10% year-on-year growth, with just 14,551 new homes completed, up 7%, and below 2019 levels. However, this was offset slightly by average selling prices growing 3%, slightly ahead of consensus. We interpret this as a focus on quality over volume, which seems appropriate in our view.
“Management are keen to highlight the trend of positive customer responses to the Home Builders Federation (HBF) building survey, which has now been above the 5* threshold since early 2020. We expect Persimmon to receive a formal 5* rating when the HBF updates its figures some time in Q1’22, an upgrade from their current 4* rating (based partly on 2019 figures).
“Continuing the quality theme, management have guided to a 28% operating margin for 2022, which is sector-leading, and slightly above expectations.
“Persimmon has been careful when commenting on the recent government statements about cladding costs, agreeing that it should not be the responsibility of leaseholders to pay. They have also reiterated a commitment to pay for any works required on buildings constructed by Persimmon, including those in the 11-18m height category, while noting that their exposure to this is small. They also highlight the company will shortly begin paying the cladding levy tax announced in the budget, so there are additional costs coming for the company in the near future.
“Persimmon currently has £1.25bn of cash on the balance sheet, and is paying a 9% dividend yield. Our concern is that while responsibility for the cladding issues across the sector may not fall entirely on companies such as Persimmon, the amount of available cash, and high cash returns to shareholders, puts them in the government’s spotlight as a source of cash to pay for the work – fairly or not. The £75m provision made for cladding work may be sufficient to cover Persimmon’s direct responsibilities, but the government may yet ask for more.”
