Persimmon seeing ‘resilient’ underlying demand in sector

The York-based builder, which continues to trade through a subdued housing market, said completed house sales fell five per cent to 4,439 and its average selling price dipped four per cent to £162,000. Turnover for the first six months of the year was about £715m, down roughly eight per cent on £776.6m a year ago.

But the group said its underlying operating margins have improved to about nine per cent from eight per cent a year ago. Its shares were broadly unchanged at 491.4p.

Persimmon added increasing volumes in the second half will mean completed house sales for the year are roughly flat on 2010. But it warned any “meaningful increase” in builders’ output will only occur when there is a significant improvement in the constrained mortgage market.

“What we’re seeing is a pretty stable market,” said Jeff Fairburn, chief executive of the group’s north division. “The market is still constrained by the mortgage market, albeit we’re seeing some improvements on that front with better loan-to-value (LTV) products and more products in the market place.

“It’s still quite challenging out there but there are people who want to buy.”

Persimmon has been calling for more and lower-priced mortgage products to attract first-time buyers, who are seen as crucial to kickstarting the housing sector’s growth.

Products such as the Government’s FirstBuy scheme, which eases some of the deposit burden for buyers, are proving popular. This is available on the group’s 29 Yorkshire sites, covering about 300 homes.

Along with other housebuilders, Persimmon is in talks with mortgage lenders about other ways of boosting the flow of credit.

“It has been most challenging because of the LTV issue for first-time buyers,” said Mr Fairburn. “Good progress has been made across the major lenders in discussion with the housebuilding industry. I think we will shortly see some better LTV products coming on as a result of that. That’s quite encouraging and will help the recovery of the marketplace.

“There’s quite a lot of effort on behalf of the industry to try to improve the situation and give confidence to the banks.”

The group said the market has been stable – although continues to trade some way off its historic peak. Its order book of £725m, level with a year ago, places it in a strong position, it said.

Despite the overall drop in first half sales, Persimmon added it had experienced a pick-up considering its lower order book at the start of the year. It blamed the cheaper average selling price, down from almost £169,000 a year ago, on selling a greater proportion of smaller houses in the first half. The group added this should rise through the rest of the year as it completes sales of more detached homes.

Persimmon also continues to buy land, which it said should boost profits and output when conditions allow.

It bought 7,500 plots during the six months, with more than a third of these acquired through converting strategic land. Included in these were 200 plots in Whinmoor in Leeds.

The group is currently operating from 380 sites, after opening 70 in the first half. It plans to open another 70 in the second half, with about 20 of these in the north.

Despite the land buys, the group’s net debt fell to just £15m at the end of June, from £122m a year ago. However, the fall in volumes over the first half disappointed some analysts, who had expected sales gains.

“We had expected sales and prices to move ahead but both are down,” said Robin Hardy, analyst at Peel Hunt. “We remain concerned about the group’s high regional exposure, the high use of shared equity and in common with its peers we see inadequate returns. We remain a seller.”

But analysts at Royal Bank of Scotland said: “More than offsetting the revenue decline has been an improvement in operating margin from about eight per cent in the first half of 2010 to about nine per cent in the first half of 2011, despite a likely weaker overhead recovery on lower revenue.

“At first glance this would appear to leave the group on track to broadly hit our 9.5 per cent full-year estimate.”

Arbuthnot Securities analysts added: “Persimmon has demonstrated that it is in a strong position to acquire new land and deliver margin restoration, whilst at the same time significantly reducing debt.”

HELP ON TO FIRST RUNG OF LADDER

PERSIMMON is a vocal supporter of moves to get more first-time buyers onto the housing ladder.

The housebuilder has secured about £35m of Government funding to support new homeowners under the FirstBuy scheme. This is being introduced across 290 Persimmon sites where about 2,100 homes are eligible for support.

The Government and housebuilders offer a 20 per cent equity loan, which alongside a five per cent deposit from the buyer, allows them to take out a 75 per cent mortgage.