Builder’s profits up following home run on sales

The company has kept a tight grip on development costs and achieved better margins on newly opened sites.

The York-based company made a pre-tax profit of £59.7m in the six months to the end of June.

The broker Panmure had forecast a pre-tax profit of £48.7m.

The underlying operating margin improved to nine per cent from eight per cent in the previous year.

Persimmon said it expected the British housing market to remain stable, but also continue to be challenging owing to the economic uncertainty.

The UK’s second biggest housebuilder reported a bounce back in summer sales after a dip over the first half of this year.

Persimmon, whose brands include Charles Church and Westbury, said that, since June 30, weekly sales were up four per cent while its total order book is now 10 per cent ahead of last year at £1bn.

The improved current trading follows a weaker period for the group, as the number of new homes sold in the six months to June 30 fell to 4,439 from 4,657 the previous year.

Average house prices also dropped nearly four per cent to £162,647, but Persimmon said the figure should improve owing to a mix of larger houses going forward.

“Our teams across the country remain focused on the basics of house building in their local markets which I am confident will deliver future success for the group,” chairman Nicholas Wrigley said.

Earlier this month, rival Taylor Wimpey reported a rise in first-half margins and profit, and predicted a stable housing market, despite the fact that economic conditions are forecast to be tough for the remainder of the year.

Analysts have said a chronic lack of housing in the UK would continue to act as a prop to the industry.

Growth in Britain’s construction industry was broadly steady in July.

Persimmon is targeting a rise in operating margin to about 15 percent in the next two years, chief executive Mike Farley said.

Mr Farley added that he expects the company to achieve double-digit operating margin growth next year.

The company said the lower average selling price also reflected an increased contribution from its affordable housing business at lower sale prices.

Jeff Fairburn, the chief executive of Persimmon’s North division, told the Yorkshire Post yesterday: “Deposits are the issue for first- time buyers. People need places to live and we want to get the message across that houses are affordable.

“We have got a big site at Selby which has done very well for us. Hull is a good market for us, it’s a decent size conurbation with sufficient people to buy housing that’s on offer there.

“We don’t really have any difficult sites (in the North) because we have good product.”

Bank of America Merrill Lynch, in a note published yesterday, said the company’s half year results were ahead of consensus and the order book and current trading was positive.

The note added: “The autumn selling season should begin to kick off from the second week in September, and remember that comps (comparatives) should be relatively easy to beat given that consumer confidence in the same period in 2010 was adversely affected by the Government’s comprehensive spending review.

“So, even without any uptick in underlying sales rates we estimate that year-on-year reservations should be running around 10 per cent better over September and October.”

Numis Securities said Persimmon’s results were better than expected, mainly owing to a lower than expected finance charge.

Killan Murphy, of Davy Research, added: “The risks heading into these results was that the completions target would be lowered for the full year.

“However, the company has reiterated that it will achieve flat completions year-on-year, implying strong sequential growth in H2 (the second half of the year).

“Amongst the UK housebuilders, Persimmon is considerably better-placed than its peers, with 43 per cent of the landbank acquired following the downturn and only 13 per cent impaired, and (it) is virtually debt free.

“This strong balance sheet underpins our ‘outperform’ rating.”

Citigroup Global Markets said the trading update showed healthy progress in uncertain times.

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