We appear to be through worst, says Persimmon as profits return

The York-based company, the UK's largest housebuilder by market value, reported an annual pre-tax profit of 77.8m, compared with a 780m loss in 2008.

The profit included a write-back of 74.8m following a re-evaluation of the value of its land. The company has suffered 624m of writedowns since the recession blasted the housing market.

Persimmon chief executive Mike Farley was upbeat about the group's prospects.

"We appear to be through the worst," he said. "Although the January figures for mortgage approvals were down, we hope that was due to stamp duty changes. Mortgage approvals are up 43 per cent since last year."

He said the year has started well with volumes and prices rising.

Sales are ahead by seven per cent on a life-for-like basis in the first eight weeks of the year House prices have gone up by around one per cent.

Before exceptional items and goodwill charges the underlying pre-tax profit was 7m, in line with expectations. Persimmon's shares closed up 5.9 per cent, a rise of 23.8p to 424.4p.

Following recent speculation that the group could make a bid for smaller rival Bovis Homes, Mr Farley said the group's focus is on debt reduction and imp-rovements in operating margins.

The group has cut its debts from over 600m at the end of 2008 to 268m, making it one of the strongest players in the sector.

Speaking about possible acquisitions in the future, Imran Akram, at Collins Stewart, said: "The group may, in our view, return to M&A during 2010 if the post-election outlook remains visible. It has a superb track record in acquiring and cutting costs." Speaking about the group's Yorkshire heartland, Mr Farley said the region had performed well in the last half of 2009 and the first two months of this year.

"Out of the Northern region, Yorkshire has improved the most," he said. "There is good affordability in the region and prices have been adjusted."

Over the year to December 31, the group completed 2,144 homes in the North, down from 2,753 in 2008.

Average Northern selling prices declined from 172,000 to 151,000, mainly due to a change in housing mix with more apartments completed in the first half.

The average selling price increased by six per cent to 155,000 in the second half as the group returned to selling more traditional houses.

Analysts at Panmure Gordon said the results suggested 2010 pre-tax profits could rise from 13m to 75m.

Analyst Rachael Waring said: "A continued focus on operating margins at the business has significantly improved profitability and this should continue."

However she warned that concerns remain over the fragility of the UK mortgage market and ongoing economic conditions .

Panmure Gordon maintained its 'buy' rating on the stock and upgraded its target price to 555p from 549p.

Analysts at KBC Peel Hunt said the results imply second half profit of around 24m and said it was likely to upgrade its numbers for this year as long as it can be confident that the momentum is sustainable.

The broker also advised caution saying that the recovery is fragile.

An improving picture across the region

Persimmon reported a "significant improvement" across all its

development sites in Yorkshire throughout 2009.

Wayne Gradwell, managing director of Persimmon Homes West Yorkshire, said the region's top performers were Persimmon Gardens in Hull, Staynor Hall in Selby and Prospect Farm in Easingwold.

He added that St Gregory's and Mill Green in Leeds have also been very successful as has Willow Edge in Castleford, where the Government's HomeBuy Direct scheme proved particularly popular.

"The start of 2010 has been very encouraging with both visitor levels and sales achieved being at high levels and showing a significant improvement on the same period last year," said Mr Gradwell.

"I am confident that in offering a wide product range, from two bedroom apartments up to five bedroom family homes, we are well placed to benefit from this much improved housing market."

He said there was evidence that house prices have not only stabilised, but are starting to gradually improve.

"Our wide geographic spread, covering 40 development sites throughout Yorkshire, places us in a strong position where we are able to benefit from this upturn in the market," he added.

Persimmon is currently developing sites in Castleford, Doncaster, Halifax, Leeds, Rotherham, Ripponden, Selby, and Wistow. It is to start work on a number of new developments including Bedale, Pocklington, Barnsley, Huddersfield and Wakefield.