Persimmon building confidence after post-Brexit pain

Added 2nd November 2016

Persimmon is showing signs of recovery following its immediate pain following the EU Referendum vote as reported in its Q3 trading update.

Persimmon building confidence after post-Brexit pain

Many of the housebuilders felt the “wrath of Brexit” in the wake of the 23 June vote, with Persimmon’s share price instantly falling by almost 40%, according to Helal Miah, investment research analyst at The Share Centre.

The stock has since recovered by about half – trading at 1,752p at the time of writing - and over the summer months Persimmon saw a 19% rise in sales compared with the previous year.

In its trading statement for the period 1 July to 1 November, the housebuilder said consumer confidence had been resilient, visitor numbers encouraging and it had received strong lender support.

Persimmon said the lower interest rate and mortgage rates remained “compelling”, especially for first-time buyers using the government’s Help to Buy shared equity scheme.

Despite concerns over Brexit, Persimmon said as well as a 19% annual increase in private sales it was fully sold up for the current year with approximately £757m of forward sales reserved beyond 2016, an increase of 4% on last year’s figure.

The Share Centre’s Miah said in spite of the positive messages coming from the group, investors should appreciate its cautious stance over land purchases in light of Brexit.

He added: “Despite these encouraging numbers, we continue to recommend Persimmon as a ‘hold’. In light of the greater risks created to the UK economy from the UK’s decision to exit the European Union, we have raised the risk profile of Persimmon and many other house builders to ‘high’. So far however, housebuilders have generally reported that there has been limited Brexit affect, although it may still be too soon to be confident on this.”

Persimmon said its strategy emphasised disciplined investment in high-quality new land to sustain good shareholder value over the long term.

Further, it said the National Planning Policy Framework was enabling the industry to assess the long-term risk profile when making the requisite investments in the short term to build new homes in the future.

But it added: “However, we recognise that the uncertainty surrounding the potential impact of the EU Referendum result on the UK economy may continue for some time. Therefore, we remain cautious with respect to new land investment but have continued to progress attractive opportunities on a selective basis. We acquired 7,580 new plots of land, and spent £116m, including payment of deferred land creditors, during the period.”

Persimmon said it expected operating profit to improve in the second half of the year from the 23.8% achieved in the first six months.

Recognising the importance of strong cash generation as part of its longer-term strategy, it was forecasting higher cash balances at year end than last year’s figure £570.4m, which it said would help the company “take advantage of market opportunities as they arise.”

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