Surge in sales sees builder restore dividend

A SURGE in half-year profits and sales prompted housebuilder Persimmon to restore its dividend, as it looks forward with "cautious optimism".

Despite an increasingly rocky housing market, the York-based group pledged an interim payout of 3p a share, its first dividend for two years.

However, fears about Government austerity cuts halting the housing market's recovery have dragged down the sector in recent months. After initially rising 4.5 per cent yesterday, shares closed up just 0.43 per cent, or 1.5p, at 348.1p.

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Persimmon shares have fallen about 24 per cent since May's General Election.

The group reported a clutch of improved numbers for the first six months of the year. Pre-tax profits multiplied more than ten times to 101.4m and revenues increased 27 per cent to 776.6m.

Completions were up 16 per cent to 4,657, with the average selling price up 8.6 per cent to 168,936.

Persimmon also made a 70.7m writeback on the value of its land, partly reversing writedowns made in 2008.

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"We've got a very strong balance sheet and are pretty confident of our position," said Jeff Fairburn, chief executive of the group's north division.

"We're 95 per cent forward sold for this year and (have) increased volume. It was right for us to reintroduce the dividend."

Analyst Anthony Codling, at JP Morgan Cazenove, said: "Whereas Bovis talked about maybe reinstating the dividend at the full year if market conditions continue, Persimmon has gone one step further and re-instated the interim dividend, which in our mind is a clear sign of confidence."

Persimmon chairman John White said while availability of mortgages is still constrained, lenders are increasingly supportive of would-be homebuyers.

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He added the market has slowed during the summer holiday period, but the Government's spending review in October "will create greater certainty which may help to improve sentiment further within the UK housing market".

The British Bankers' Association yesterday said mortgage approvals fell for the second month in a row, to 33,698 in July, 2.5 per cent less than in June and well down on the high of 45,415 reached in December. Both the Royal Institution of Chartered Surveyors and lender Nationwide reported falls in selling prices last month.

"We do not believe that we will be moving to the double dip scenario," said Mr Fairburn.

"Following (the October spending review) we think we will return to more normal trading levels."

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The group continued to make selective land purchases during the first half, adding 4,263 plots to give it a land bank of 58,957 plots. More than half its recent land buys have been in the south.

"The south has been a more buoyant market in the first half of the year," said Mr Fairburn. "However, Yorkshire has been encouraging for us. We've sold much better in the first half than we did in 2009. Prices are pretty resilient around Yorkshire."

The group has shifted its focus to more family housing, with sites at Bedale and Selby proving particularly successful. It has also started developments in Bridlington, Doncaster and Hull.

Cash generation of 185.6m helped Persimmon slash net debt to just 122.1m, with many analysts expecting to see the group debt-free by the end of the year.

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Persimmon revealed it is axing its final salary pension scheme, instead linking retirement pay to career average salaries. This will affect 460 staff.

The margins of success

Analysts highlighted Persimmon's sharply-improved profit margins, which leapt from 1.6 per cent last year to eight per cent.

They said the group's conservative accounting, only writing back 71m in the first half, stands it in good stead.

"Its asset writedowns remain among the most cautious in the industry," said analysts at Citigroup.

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They added its balance sheet may register no debt by the year end, giving firepower for acquisitions.

Glynis Johnson at Deutsche Bank said the resumed dividend reflects confidence.

"While this is not likely to qualify Persimmon for income funds, we see it as a reinforcement that the company sees itself well positioned going forward."