Persimmon Shares Tank 11%, Builder Becomes FTSE 100’s Biggest Faller

Homebuilder Persimmon led the FTSE 100 lower on Wednesday as it released a gloomy trading assessment for the new year

At £12.95 per share the company was last trading 11% lower in midweek trading. It has fallen 46% over the past 12 months as conditions in the UK housing market have deteriorated.

In its full-year trading statement Persimmon said that revenues rose 6% in 2022 to £3.82 billion. This was driven by a 5% increase in average selling prices (to £248,616) and a 2% uptick in completions (which came in at 14,868).

Meanwhile, underlying operating profit increased 4% to £1 billion. Despite high cost inflation of between 8% and 10% its underlying operating margin edged down modestly, to 27.2% from 28% a year earlier.

However, a sharp deterioration in sales during the second half has cast a cloud over the company’s outlook for 2023. The full-year dividend for last year was slashed 74% from 2021 levels, to 60p per share, to reflect current difficulties.

Forward Sales Slump

Persimmon ended 2022 with forward sales of £1.52 billion, down considerably from the £2.21 billion it recorded a year earlier.

The firm said that “[our] forward sales position reflects the significant drop in private sales rates experienced in quarter four.” These slumped to 0.3 per sales outlet per week in the period from 0.77 in the final quarter of 2021 as consumer confidence worsened.

The full-year sales rate for 2022 dropped to 0.69 from 0.83 a year earlier.

Persimmon said that its rate had recently ticked higher again, to 0.52 in the first eight weeks of 2023. But it added that completions would still topple to between 8,000 and 9,000 for the full year if current rates remain.

This would mark a significant drop from the 14,848 completions it printed in 2022.

Profits Tipped To Drop

Chief executive Dean Finch commented that “the market remains uncertain” but added that “the sales rates seen over the last five months mean completions will be down markedly this year and as a consequence, so will margin and profits.”

Finch said that recent marketing campaigns had improved sales rates in recent weeks, though he noted that “they still remain lower year on year.”

Persimmon’s chief struck an optimistic tone looking further ahead, however. He said that “the fundamentals underpinning demand for new homes remain strong and we continue to target disciplined growth in the coming years while continuing to enhance our quality and service credentials.”

A “Downbeat” Picture

City analysts have warned that conditions could remain extremely challenging for the housebuilder in the short term.

Charlie Huggins, head of equities at Wealth Club, commented that “Persimmon, like its peers, has seen a slight pickup in sales since the start of the year. But overall, the outlook for the year ahead remains downbeat.”

He noted that “mortgage payments for first time buyers have significantly increased over the past year” whilst “limited availability of high loan to value mortgages and the end of the Help to Buy scheme in England” have also hampered the housing market.

Huggins said that there is some reason for optimism, commenting that “despite rising interest rates, mortgage rates have fallen in recent months due to intense competition between lenders.” He added that consumer spending has also remained robust despite the cost-of-living crisis.

However, the analyst added that “the group’’s margins could easily halve this year” as costs rise and home completions sink.

Aarin Chiekrie, equity analyst at Hargreaves Lansdown noted that “the longer-term fundamentals of the UK housing market remain strong, but short-term headwinds are creating lots of waves for Persimmon.”

He added that “recession fears aren’t going to abate anytime soon, so efforts to conserve cash now are a wise move.” Persimmon’s net cash dropped by £385 million year on year to £861.6m in 2022, a result that also likely prompted the dividend cut.

Royston Wild owns shares in Persimmon.