Persimmon is underpinning its own foundations. The UK housebuilder has been rocked by disputes over excessive pay and the shoddy quality of some homes. Normality is returning thanks to the departure of chief executive Jeff Fairburn last year and an extra £140m spent on work in progress in the first half. The trade-off resulting from the latter is lower sales and profits, the company said on Tuesday.
The UK housebuilding sector, which amplifies jumps or drops in economic confidence, has been under pressure for the past year. Share prices are on average 7 per cent lower. Cracks in Persimmon’s public façade mean its stock has slipped further. It is at its lowest level for more than two years. The current valuation of under 7 times forward earnings was last seen during the financial crisis.
Subsidence is overdone. Persimmon’s mix of price and location means it is better protected from rising costs and cooling house prices than some rivals. The prospect of a chaotic no-deal Brexit is hardly reassuring. But prime minister Boris Johnson covets popularity at any cost — provided someone else pays. An extension of Help to Buy subsidies could figure in any stimulus package. The scheme is widely considered to have boosted Persimmon’s sales, accounting for roughly half last year.
Build cost inflation is running at about 4 per cent nationally. House prices need to rise by about 2 per cent annually to maintain margins, reckons Berenberg. Persimmon’s build costs climbed only 0.1 per cent in the first half. They were more than offset by cheaper land prices, down 6.7 per cent from last year. Selling prices are still rising.
A focus on the Midlands and north of England means less exposure to London’s frothy market. It also reduces Persimmon’s reliance on eastern European labour, which may be curbed by a points-based UK immigration system mooted by Mr Johnson. Persimmon’s run of bad publicity has made the stock a forbidden fruit. That should sweeten its allure to contrarian investors.
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