Persimmon share price slides despite upbeat statement

Added 5th July 2016

Persimmon’s share price dropped by 5% to 1364p Tuesday despite posting encouraging growth in group revenues and completion volumes over the first half of the year.

 Persimmon share price slides despite upbeat statement

Ahead of the house builder’s trading update to be released on 23 August 2016, Persimmon confirmed group revenues of £1.49bn during the period, a 12% increase from the previous year.

The company stated that trading through the first half of the year had been strong, as evidenced by a 6% increase in completion volumes which resulted in 7,238 new homes. The average selling price of homes was circa £205,500, 6% higher than the year before.  

Even Persimmon’s sales were able to withstand the uncertainty in the months before the referendum, with sales in May and June 1% higher relative to H1 2015.

On the subject of the referendum, the group stated it remains confident in its ten year strategy, which was designed to accommodate periods of uncertainty throughout the housing cycle.

“We believe that market fundamentals remain strong, supported by long term unfulfilled demand, and that the UK housing market will continue to provide good opportunities for those companies with the right strategic focus and the balance sheet strength to navigate future changes in trading conditions,” the group commented. “We believe our focus on building traditional family housing in attractive locations for all purchasers from first time buyers to home movers will continue to attract customers in good numbers.” 

"You wouldn’t guess from Persimmon’s results that the company has lost around a third of its value in the last fortnight,” said Laith Khalaf, senior analyst at Hargreaves Lansdown.

“However, that’s because the stock market is looking forward to the next six months and beyond, and the Brexit vote is casting a long shadow over the UK house building sector,” he explained.

Khalaf said he thinks the housebuilder is right to indicate to shareholders that it is still too early to assess the impact of Brexit on the new homes market.

“Low interest rates, and a big supply-demand imbalance in the UK housing market, will continue to be supportive of the house building sector,” he said. “Likewise people aren’t suddenly going to stop wanting to own a home simply because the UK is no longer going to be a member of the European Union.”

“However, until we get a picture of housing activity following the referendum result, the stock market is likely to push the sell button first, and ask questions later,” Khalaf warned.

Despite the post-Brexit neuroses, Persimmon clarified that it was on track to return £2.76bn to shareholders by 2021, equivalent to £9 per share.

Khalaf was generally optimistic about this objective.

“The company isn’t blinking when it comes to its capital return programme either, and still plans to pay out a further £5.50 per share to investors by 2021,” he said.

“Based on the current share price, that means investors will get over a third of their investment back in cash over the next five years, provided Persimmon are able to make good on their promise.”

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