Why UK housebuilder Persimmon is 'not a total lemon'
The update from Persimmon came after the Bank of England's Monetary Policy Committee voted last week to cut benchmark UK interest rates by a quarter point to 4%. The vote was held twice in order to achieve a definitive result.
Russ Mould, investment director at AJ Bell, said there were encouraging signs in the Persimmon update but pointed out 'some rather chunky exceptional items which mean earnings per share is actually down by 10%'.
Persimmon is one of seven housebuilders which have agreed to pay £100m into affordable housing programmes following an investigation by the Competition and Markets Authority into concerns the companies shared information on pricing, with its contribution resulting in a £15.2m hit to its income statement.
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The parties have not admitted liability or wrongdoing for the conduct subject to investigation, the CMA has said. The watchdog has been consulting on a package of commitments from the housebuilders to address its concerns.
Mr Mould said: 'Results from Persimmon suggest the UK housebuilding sector is not a total lemon, and at their current low ebb, these stocks might pique the interest of contrarian, value investors. Completions were up at Persimmon, likewise average selling prices, which were 8% up on last year. Not too bad in what is perceived to be a stagnant housing market. All of that has fed through into an 11% rise in underlying operating pre-tax profit.
'However under the bonnet things don't look quite so rosy, thanks to some rather chunky exceptional items which mean earnings per share is actually down by 10%.'
Persimmon spent a further £30.7m on remediation costs on previously completed projects in the first half, taking total expenditure to more than £150m. It has now completed work on 41 of the 83 developments in the programme.
The company's chief executive, Dean Finch, said: 'I am pleased that we have continued to grow in the first half of the year despite challenging market conditions and with affordability still an important constraint. Our average sales price, sales, completions, planning approvals, active sites and forward order book are all up, many against industry trends, showing that our strategy including a focus on self-help has continued to deliver.'
Mr Finch added: "We are on course to deliver our previously guided range of 11,000-11,500 completions this year. While mindful of macroeconomic volatility we remain focused on driving further improvements to secure the medium-term growth ambitions we set out in March.
"Given our strong progress with building safety remediation, we anticipate being able to review our capital allocation policy when the programme of works is substantially complete."
The company announced its plan to pay an interim dividend of 20p per share, in line with last year.
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