Persimmon reaps sales reward for its focus on family homes

HOUSEBUILDER Persimmon reported a strong first half with average selling prices up seven per cent and private sales up 18 per cent on last year.

The York-based builder attributed the rise to its focus on family houses, rather than starter homes, and its investment in new land.

Persimmon’s managing director and North chief executive Jeff Fairburn said the market is still tough and trading conditions are difficult, but the group is pleased with the progress it is making.

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“The key thing for us is the ten-year strategy we announced. We’re on track with that,” he said.

“We’re improving margins and we’re investing heavily in land. We’re really pleased with what we’ve achieved.”

The ten-year strategic plan aims to turn the group into a stronger, larger business, backed by a significant and high quality landbank.

It also wants to return £1.9bn to shareholders over the next nine years.

The group legally completed 4,712 new homes in the first six months of 2012, up six per cent on the previous year, while cancellation rates remained in line with low levels last year at 18 per cent.

Turnover rose 13 per cent to £805m.

The average selling price rose from £160,600 to £171,400, thanks to a greater proportion of traditional family homes being sold.

“Our mix reflects the move upwards towards family houses rather than first-time buyers,” said Mr Fairburn.

“The average is a three-bedroom semi, but we’re building two-bed through to Charles Church houses with a large number of bedrooms.”

He said that there has been no move to more upmarket areas, but the group is focusing on main conurbations where a high percentage of the population lives.

“Yorkshire has done well and shown good improvement,” said Mr Fairburn.

“We’re opening new sites in Leeds, Bradford, Wakefield, Doncaster and York.”

The group is due to open a large site in Fulford in York in the autumn, which will include 700 units. Persimmon opened 65 new sites in the first half and it is currently selling new homes from 375 sites.

Visitor numbers to both the Persimmon Homes and Charles Church home finder websites grew by over 50 per cent.

Mr Fairburn said the increase reflects customers’ growing preference to search for new homes using the internet.

“We’ve invested in and improved the website. We have a lot more information available now,” he added.

Persimmon said the increase in website users is driving healthy levels of visitors to its developments.

The group expects to open a further 60 new sites during the second half of the year.

The value of total forward sales was seven per cent ahead of last year at £774m. Private sale forward revenues are 11 per cent ahead of the same point last year while the value of forward sales to housing associations is in line with last year.

Persimmon said it has experienced the normal seasonal slowdown in private sales reservations from around the time of the Jubilee weekend in early June as it moves into the quieter summer weeks.

Mr Fairburn said he doesn’t think the group will be too badly affected by the Olympics.

“We generally see a slowdown in the holiday period. If you need to buy, you won’t be put off by the Olympics,” he said.

Persimmon said strong cash generation has supported significant investment in new land.

It has invested £150m in land in the first half and bought 5,600 new plots, increasing its consented land bank to 63,800 plots.

As part of the group’s aim to return £1.9bn, or £6.20 per share, to shareholders, the first capital payment of £227m will be paid in June 2013.

Analyst Charlie Campbell, at Liberum Capital, said: “This is a very strong first half trading update. (First half) operating profit is likely to be up 45 per cent year on year to £93m.

“I would expect consensus estimates to rise from £183m for the full year to £200m.

“Some of this good news is already in the price.”

The shares closed down two per cent at 621.5p due to profit taking after a strong run.

Analyst Rachael Applegate, at Panmure, said: “Persimmon has issued a strong pre-close update, ahead of our expectations and although the market has seen its traditional slowdown over the summer months, the group is well placed for the year.

“We upgrade our full-year expectations and raise our target price to 689p from 670p, and maintain our ‘buy’ recommendation.

The group will announce half year results on August 21.