Blackfriar: Shareholders hope Persimmon can put the traumas of the last two years behind it

Persimmon made the decision to cut the number of completions after a scathing independent report
Persimmon made the decision to cut the number of completions after a scathing independent report
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Housebuilder Persimmon has had a grim few years following rows over excessive executive pay and complaints about the quality of its homes.

However, the York-based housing giant has taken action by reducing the number of homes built by 4 per cent last year in order to focus on quality rather than quantity.

The firm made the decision to cut the number of completions after a scathing independent report which said it had failed to ensure the homes were habitable for the long term.

Richard Hunter, head of markets at interactive investor, said Persimmon has suffered from difficulties of its own making, which are now the focus of concerted efforts to rectify.

In particular, its quality issues both in terms of build and customer service have been widely reported and criticised.

Mr Hunter said the company has put these matters at the top of its “to do” list and, while there has been an inevitable impact on sales, there are already signs that management has grasped the nettle, which in turn could lead to a rather more comfortable 2020.

He said Persimmon has a lot going for it, even if the UK’s European negotiations lead to uncertainty and volatility as the year unfolds. It has a deep land bank and it is determined not to repeat the mistakes leading up to and during the financial crisis, such that the company is now the proud owner of a strong balance sheet, with a particularly cash generative business.

Mr Hunter said Persimmon has a strong book of forward sales into this year, which will underpin prospects, while the wider benefits propelling the sector are likely to remain in place for the time being, such as mortgage availability and a low interest rate environment.

In addition, the firm has less exposure to London and the South East than many of its rivals and it should benefit from the Government’s determination to invest in the North following its success in the General Election.

Mr Hunter said Persimmon’s misdemeanours may have tarnished its public reputation temporarily, but has had little effect on the investment community.

Indeed, the shares have enjoyed a 26 per cent gain over the last year, much higher than the 10.5 per cent increase for the wider FTSE 100 and have surged 22 per cent in the last three months alone, boosted by the General Election result.

CEO Dave Jenkinson appears to be getting to grips with the issue and a brace of new customer care measures and investments have been announced. Mr Jenkinson is confident that these measures will make Persimmon a four-star builder.

Last year, Persimmon announced it would be the first of the major UK housebuilders to introduce what the industry calls a “homebuyers’ retention”. Under the scheme the homebuyer’s solicitor withholds 1.5 per cent of the total home value (an average of £3,600 per home) until any faults identified are resolved.

It is a structure that’s common in the commercial sector. With annual volumes of around 16,500 new homes, Persimmon now has a £60m incentive to resolve faults quickly.

Retention is an idea that’s been mooted in the past, but has always been resisted by the industry in the UK. Any measure that puts control back into the hands of the customer has to be welcomed.

Chairman Roger Devlin and Mr Jenkinson have shown they are serious about changing the culture at Persimmon and repairing damaged relationships with customers and Government.

Shareholders are hoping the firm can put the traumas of the last two years firmly behind it.