Family matters for Persimmon as group outperforms market

PERSIMMON built more family homes to earn better margins in the first six months of the year, helping it outperform a stagnant housing market.

The York-based group, which also builds under the Charles Church and Westbury Partnerships brands, sold 4,712 homes, six per cent more than a year earlier.

Selling more town houses and detached homes instead of flats helped its average price increase seven per cent to £171,206. The builder’s underlying pre-tax profits surged 65 per cent to £98.7m.

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Persimmon has recovered strongly after a tough 2008/9 when it was forced to shed more than a fifth of its workforce. Earlier this year it unveiled a plan to return £1.9bn to shareholders over the next decade, and has pledged to grow with minimal debt.

“Undoubtedly it’s still very difficult for some of the smaller players,” said managing director and North chief executive Jeff Fairburn. “The main issue is still the (lack of) mortgages.

“We produce whatever volume the market can take. We’ve re-sized the business – we’re confident with the scale and size of what we do.

“It’s about building the right houses in the right locations.”

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House prices have weakened in recent months according to surveys. Mortgage lender Halifax recently said house prices fell by 0.6 per cent in July. Property website Rightmove said the average asking price for a house was down 2.4 per cent month-on-month in August.

But Mr Fairburn said prices are “holding up”. “We’ve seen negativity on house prices (from surveys) but we’re not seeing that,” he said. “In the new build market we’re seeing house prices holding firm or moving ahead.”

Despite seasonal summer weakness, its private weekly sales are five per cent ahead of last year. Cancellation rates of 18 per cent are “historically low levels” it said.

Its forward order book of £1.04bn is four per cent ahead of last year.

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Chairman Nicholas Wrigley said while he expects the market to “remain challenging”, the group is on track to grow into a “stronger, larger business”. Persimmon said 29 per cent of the homes sold were detached, versus an industry average of 23 per cent. Just 16 per cent of its sales were apartments – half the national average. “We’ve pushed a bit further through the market into family homes,” said Mr Fairburn.

That drove the average size of a Persimmon home up two per cent to 1,125 sq ft. The group’s profit margins saw an even bigger increase, climbing from nine per cent to 12.2 per cent.

“Our sites continue to deliver improving gross margins with the margins in the forward order book building on the progress we have made in the first half,” said Mr Wrigley.

Along with other listed housebuilders, the group has used the financial crisis to snap up cheaper development land, also eking out margin by developing it with cheaper sub-contracted labour and materials. “Build and other direct cost control (is) driving improvement in margin,” said the group.

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Persimmon bought 5,779 plots during the six months, boosting its land bank to almost 64,000 plots – giving it more than 6.5 years’ land supply at current build levels.

It opened 65 new sites during the half, to give it about 380 national sites. Some 55 per cent of its new outlets were in the South, with the rest in the North, which Mr Fairburn said reflects the stronger Southern market.

“In the South we have a faster rate of sale per outlet,” he said. “There’s a slight weighting towards the South. It’s about quality locations. We target our land-buying towards places where people want to buy houses.”

The builder sold 27 per cent more homes in the North during the half, with 1,161 completions. However, average Northern prices were down five per cent to £151,735. In Yorkshire it sold 267 homes, with average prices sliding nine per cent to £148,700.

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Sales in its central division slid eight per cent to 1,191 completions. In the South sales fell seven per cent to 1,068 completions. Average prices there were up four per cent to £152,426.

The group ended June with net cash of £135m and said it is well placed to start its dividend scheme next June at 75p per share.

In a note to clients, Panmure Gordon hiked its full-year profits forecast but moved from “buy” to “hold”.

“Persimmon has reported a strong set of interim results and our full-year forecasts are upgraded,” said analysts at the brokerage.

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“However, after a strong run in the share price over the past few weeks, this looks to be in the price for now.

“We therefore moderate our recommendation to hold (from buy) though income seekers may still be attracted by the 75p cash return (10.6 per cent yield) due in June 2013.”

The shares closed down 8p at 697p after a strong run.

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