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Persimmon's growth continues as pay row rumbles on

‘Persimmon is still selling more houses at higher prices, but business is not booming like it was last year. Indeed the share price has fallen by more than 10% in the last month," noted Laith Khalaf at Hargreaves Lansdown
Monopoly hotel on top of pound coins
Consumer confidence remains resilient - at least it does in the areas where Persimmon operates

It may not have reported the eye-popping growth we have become used to, but house-builder Persimmon PLC (LON:PSN) continues to grow steadily.

The first half of 2018 saw revenues rise 5% to £1.84bn from £1.75bn in the first half of 2017.

READ: Housebuilder Persimmon reports robust trading since the start of the year

Housing completions rose 3.6% to 8,072 from 7,794 in the same period of 2017 while the average selling price increased by 1.2% to around £215,800 from £213,262 the previous year.

The average selling price of the roughly 4,900 new homes sold forward into the private sales market was around £236,700, some 2% or so ahead of the prior year. The group's new homes sold forward to its housing association partners at 30 June had an average selling price of around £117,600.

Total enquiry levels are running roughly. 6% ahead of the prior year, Persimmon revealed.

The weekly private sales rate per site for the first half continued to be strong at around 0.78 from an average of roughly 375 active sales outlets, which was in line with 2017's performance.

“Consumer confidence remains resilient in our markets and attractive mortgage products provide compelling support to purchasers of new homes,” Persimmon said.

The value of the group's total forward sales of new housing at the end of June stood at £1.68bn, up 5% than a year earlier (2017: £1.60bn).

Management said that, despite inflationary cost pressures, it expects a continued improvement in the group's underlying housing operating margin in the second half of 2018.

As at 30 June, the group – famed for its generous dividend pay-outs (and even more generous management bonus schemes) held £1.15bn of cash, up from £1.12bn the year before, though this was before the payment of the scheduled capital return of £344mln on July 2.

Some scepticism among analysts over how long the party can continue

Liberum Capital Markets, which is a buyer of the stock, said: “Management reports that its consumer confidence remains resilient, which is as expected given its geographical and customer mix (more skewed to the north and towards first time buyers). The shares look good value on 2.6x 2018E book (sector 1.8x) as its return on equity is expected to be 27% compared to 21% for the sector.”

Laith Khalaf, a senior analyst at Hargreaves Lansdown, suggested pickings for the house-builders may be slimmer from here on in.

“Interest rates still remain attractive for house buyers, and the Help to Buy scheme continues to provide critical support for transactions in the new build market. While the government has committed to the scheme until 2021, share prices in the sector may come under pressure as we get nearer to that date, unless the deadline is extended,” he suggested.

Russ Mould, the investment director at AJ Bell, said continuing growth for housebuilders Persimmon and Bovis Homes "helps reassure a sceptical market on the prospects for the sector but there are some more worrying signs beyond the headline advances in revenue and profit".

“It is clear from both statements that the housebuilders are no longer able to rely on house price growth to drive their returns," Moul ventures.

“Persimmon’s own average selling price creeps up 1.2%. The question remains on how profitability will fare when supportive factors like low interest rates and the Help to Buy scheme are removed.

“Persimmon, which has attracted criticism for its levels of executive pay, also revealed that chief executive Jeff Fairburn is paid 3,000 times more than its lowest paid worker – a revelation which could keep the excessive pay issue in the spotlight for the company," he suggested.

Shares in Persimmon were up 2.1% at 2,535p in early trading.

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