Persimmon – Sales Rates Edge Higher, But Challenges Remain

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Persimmon plc (LON:PSN)’s completions declined by 42% to 1,136 homes, reflecting a lower order book at the beginning of the period.

In the first quarter, net private sales rates have roughly doubled to 0.62 when compared to the final quarter of 2022, but this remains some way below the 0.98 they stood at 12 months ago. Despite this, overall pricing remained firm in the first quarter, with the private average selling price on completions up 10% year-on-year.

Persimmon’s forward sales position fell 30% year-on-year to £1.7bn, but has moved forward from the £1.0bn level at the beginning of 2023.

Land holdings also came in 6% lower at around 86,400 plots, and the cash position fell 18% to £353m.

Build cost inflation remains at 8-9%, with little sign of easing in the short-term. Incentives on new home reservations are running at around 3%, as the group continues to offer part exchanges and 10-month mortgage free offers.

If current momentum continues, Persimmon expects full year completions to be towards the top end of its 8,000-9,000 guidance.

The shares rose 3.6% following the announcement.

Persimmon’s Earnings

Given that Persimmon’s continuing to feel the effects of a shaky housing market the uptick in sales rates since the start of the year is encouraging and has lifted spirts among shareholders.

However, sales still remain some way below levels seen 12 months ago. That’s led Persimmon to pull back on investing in new land – something we expect will continue across the year as the group sharpens its focus on preserving its depleting cash levels.

Analyst consensus suggests a 38% fall in revenue this year. With build cost inflation showing no sign of easing, as well as a cocktail of other headwinds, we expect operating margins to take a significant hit.

While this isn’t ideal, it’s worth remembering that housebuilders are cyclical businesses that go through periods of ups and downs.

Persimmon’s in-house materials business should offer some relief to inflating prices where materials are concerned. But still, the outlook for the rest of the year remains challenging and things could continue to get worse before they get better.”

Article by Aarin Chiekrie, equity analyst at Hargreaves Lansdown