Persimmon said trading in H1 had been excellent as legal completions, average house price and revenues rose. 95 new sites opened this year are expected to help the housebuilder exceed margin rates. The Share Centre recommends Persimmon as a ‘hold’ for higher risk investors seeking growth.
As Persimmon updates the market Helal Miah, investment research analyst at The Share Centre, explains what it could mean for investors:
Persimmon’s trading update for the first half of the year was very encouraging, resulting in the share price opening up by roughly 5% in early trading today. The housebuilder described trading over the period as ‘excellent’. Legal completions rose by 8%, while the average house price rose by 3.5% to £213,000 taking revenues for the first half to £1.66bn, which investors should acknowledge is up 12% on the same period last year. Furthermore, the group highlighted this morning that consumers remained resilient as mortgage rates and availability remained supportive as buyers also brushed aside any concerns or uncertainties that the UK election could have caused.
So far this year, Persimmon has opened 95 new sites, all of which are expected to help margins rates comfortably exceed the 25.7% we saw in the second half of last year. Interested investors may want to note that the forward sales of £1.6bn is 18% higher than this time last year while sales in the second half will be further enhanced by the planned opening of a further 100 new sales outlets. The group remains active in land bank and plot acquisitions and has a cash pile of £1,120m, a large part of which will be distributed to investors.
These numbers produced suggest that all is still very well with not just Persimmon, but the house building market in general and the sector’s share price recovery since the EU Referendum reflects that. However, we are of the view that shares in the sector are fairly valued, taking into account the buoyant demand for new homes. Given the strong recovery and recent signs of a moderating housing market, and the very cyclical nature of the sector, we continue to recommend Persimmon as a ‘hold’ for investors willing to accept a higher level of risk.