Persimmon’s full-year average weekly net private sales rates rose 21% to 0.70, due to demand being consistently higher than the prior year since spring.
Completions were ahead of market expectations, up 7% to 10,664 new homes. Average private selling prices were broadly flat year-on-year at £287,150.
The order book grew 8% to £1.1bn. The net cash position fell from £420mn to around £260mn due to increased land spend and continued shareholder returns.
Full-year underlying pre-tax profit is expected at top end of market expectations (£349mn-£390mn).
Heading into the new year, the group said it was mindful of the timing of future interest rate changes and the effect they may have on consumer confidence in the near term. Build cost inflation is expected to be in the low single digits this year.
The shares rose 4.6% in early trading.
Our view
Persimmon’s 2024 trading update gave investors a lot to be positive about. New home completions and average selling prices both exceeded market expectations due to much-improved buyer demand. That’s given the group a solid platform to build on in 2025, and markets reacted positively on the day.
The positive sales momentum is feeding down to the bottom line and full-year underlying pre-tax profits are expected to return to growth after two years of declines. Given Persimmon’s houses are typically priced more than 20% below the newbuild national average, sales tend to be more resilient in times of uncertainty. The fact that the order book is growing at pace is an encouraging sign too, and improves visibility over future revenues.
Growing revenues should be enough to offset low single-digit build cost inflation this year and keep margins from getting squeezed. The in-house materials businesses, which we see as a key differentiator, should help on this front too. They give Persimmon quick and cheaper access to key materials. For example, 54% of the bricks used are sourced in-house, giving a £1,800 saving per plot.
Significant pent-up demand for homes in the UK remains unchanged. The new government’s reforming the national planning framework to help remove some of the roadblocks for builders is starting to have a positive impact. But it’ll likely be a while before these changes really move the dial for housebuilders.
Persimmon’s robust land bank is a key strength, and it should be a major beneficiary of easier planning policies when they arrive. Given its low average selling prices and first-time-buyer bias, it would also be well-placed to benefit from any potential government support for homebuyers.
Keep in mind that while there are early signs of improvement, the outlook can change on a dime. There’s plenty of macroeconomic uncertainty, and forecasts of lower interest and mortgage rates this year may not come through as expected. That would hurt demand for Persimmon’s homes and put profit expectations under pressure.
The balance sheet is in decent shape, with a healthy amount of net cash on hand to support the current 6.2% forward dividend yield. But remember, no shareholder returns are guaranteed.
With green shoots of a recovery emerging in the housing market, there’s scope for an improvement in sentiment towards the sector. Persimmon’s valuation remains well below the long-run average, providing an opportunity for potential long-term investors. But it could be a while before activity in the sector ramps back up into full flow, and there could be more unexpected challenges on the road ahead.
Environmental, social and governance (ESG) risk
Most housebuilders are relatively low risk in terms of ESG, particularly for those in Europe. However, there are some environmental risks to consider, from direct emissions to the impact of their buildings on the local ecology. The quality and safety of their buildings is also a key risk.
According to Sustainalytics, Persimmon’s management of ESG risk is strong.
The group collects and discloses scope 1, 2, and 3 emissions and has strong emission reduction plans in place. It has also committed to its homes being net zero carbon in use by 2030. However, there’s currently limited disclosure on what percentage of materials are recycled. Disclosures around product and service safety is also lacking.
Persimmon key facts
All ratios are sourced from Refinitiv, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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