Persimmon 'in good shape' for sales challenge

The York-based group said sales volumes and prices have remained stable since July, with a gradual sales increase in September, but it did not see the normal autumn pick-up in visitor levels and reservations.

However, Persimmon said good cash generation has continued and it expects to finish 2010 with net debt of less than 80m, an improvement on its previous guidance of 100m.

Persimmon managed to survive the recession without having to tap shareholders for cash, and said its strong balance sheet and high-quality land holdings will help it weather "challenging markets".

"There are buyers out there but the issue regarding mortgages is still pretty tough for first-time buyers," said Jeff Fairburn, chief executive of the group's north division.

"There's undoubtedly concern with individuals and their own particular circumstances and it's the uncertainty with people that's really the issue at the moment."

House prices fell last month at their fastest pace in 18 months and surveyors expect transactions to remain flat for the foreseeable future as lack of mortgage finance and economic uncertainty deter buyers.

Persimmon's comments echo other housebuilders, which have spoken of a weaker-than-expected autumn selling season. Bellway recently said it expects the housing market to be "moribund" until Christmas at least.

Mr Fairburn said while the Government's Comprehensive Spending review last month helped lift some uncertainty surrounding the housing market, the full impact of public sector spending cuts has yet to be felt.

"We've seen a bit of a pick-up in the north," he said. "Obviously we've got some fairly poor areas of exposure to the public sector but having said that the impact on jobs in the near term is not as great as people had anticipated."

Persimmon said lack of mortgage finance remains a "major obstacle" for buyers, especially those without large deposits. Further recovery will depend on more mortgage products on "appropriate terms", it added.

"There are some indications that there are a few better mortgage products coming to the market but we do want more products that are geared to first-time buyers," said Mr Fairburn.

Persimmon expects to lift revenues by 10 per cent this year, and said it is on course to sell 9,400 homes, a five per cent increase.

It also expects to lift its underlying operating margin to eight per cent for the full year, from four per cent a year ago.

It is fully sold up for the year, with more than 460m of sales already reserved beyond this year. It has opened 60 new sites since the start of July, with another 15 to come through by the end of November.

Mr Fairburn said the group plans to start a 700-home development in Doncaster next year, and is applying for detailed planning permission for another development, also for 700 homes, in York.

The group said it has remained selective in its land replacement during the second half, buying about 4,000 plots on 41 sites.

Housebuilders are now looking to the spring selling season, traditionally a busy time of year for home sales. Mr Fairburn said Persimmon had an excellent 2010 spring selling season in the north, particularly in Yorkshire, and he thinks spring 2011 "will probably be the same".

Shares in the group dipped 0.81 per cent to 357.3p. Analysts highlighted Persimmon's strong cash position. "A reasonable cash position is now vital for achieving good land deals... as sellers are more reluctant to accept deferred terms," said analysts at MF Global.

"Persimmon now falls into this group of housebuilders with good balance sheets."

Keith Bowman, analyst at Hargreaves Lansdown, said: "Investors continue to draw comfort from management 'self help' initiatives and its ability to read the housing market, although uncertainties overshadowing the broader market are likely to inhibit investor sentiment for now.

"Mortgage availability remains constrained, public spending cuts and tax increases continue to overhang consumer confidence, while the rise in commodity prices could eventually impact on group costs, with timber and copper piping products potentially in the firing line."

Plea to Coalition for more help

Persimmon has called for more Government help to boost housebuilding across the UK.

The coalition Government recently released details of a plan to encourage councils to attract more housebuilding in their areas.

New Homes Bonus, a 946m scheme, will give councils grants in return for every new home built for six

years.

"The idea is a good one," said Jeff Fairburn, chief executive of the group's north division.

But he said more support is needed to encourage first-time buyers onto the property ladder.

The Government's shared equity scheme for first-time buyers, HomeBuy Direct, ended in September.