Persimmon delivers 13 per cent rise in half year profits

Jeff Fairburn the CEO of  Persimmon Picture by Simon Hulme
Jeff Fairburn the CEO of Persimmon Picture by Simon Hulme
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House building giant Persimmon brushed aside concerns over the impact of the recent interest rate hike as it posted a 13% leap in profits and said customer demand remained resilient.

The Charles Church group said it had seen “encouraging” trading through the quieter summer months, with demand continuing to be supported by healthy employment trends and low interest rates.

This comes despite the Bank of England’s move to hike interest rates from 0.5% to 0.75% earlier this month - the highest level for nearly 10 years.

Persimmon reported pre-tax profits of £516.3 million for the six months to June 30, up from £457.4 million a year earlier.

Chief executive Jeff Fairburn - who has come under heavy fire over his pay package in recent months - said the group is also set to deliver further “high-quality, sustainable growth”.

He said: “We have continued to experience good levels of customer interest in our housing development sites as we trade through the quieter summer season.

“Customers are continuing to benefit from a competitive mortgage market and confidence remains resilient based on healthy employment trends and low interest rates.”

Persimmon also said it had taken advantage of the prolonged hot summer weather to push on with its build plans and make up for delays caused by the snow and freezing conditions earlier this year.

“As a result, the group is now in a stronger position to offer a good range of house types for customers to choose from and which are available for delivery on appropriate timescales,” it said.

Persimmon said group revenues lifted 5% year on year to £1.84 billion in the first half of the year, with house sales by volume up 3.6% to 8,072.

Its group-wide average sale price lifted 1.2% to £215,813 - which marked a slowdown on the 4% growth seen a year ago.

Its average private sale price for the Persimmon brand rose 4.4% to £223,308 and the sales price for Charles Church increased by 2.2% to £355,574.

Forward sales since July 1 are 6% higher at £2.12 billion, with 6,528 new homes forward-sold in the private market at an average selling price of around £235,800, according to Persimmon.

But the firm continues to be dogged by controversy over excessive pay for top bosses.

Earlier this month, Mr Fairburn appeared at the top of a High Pay Centre list of the 10 highest-paid bosses in 2017.

His £47 million salary is around 3,000 times more than Persimmon’s lowest paid worker.

The company has also been criticised for agreeing pay deals for a string of top bosses worth more than £100 million.

The group saw 48.5% of investors vote against the pay plans in April as they vented anger over a £75 million payout for Mr Fairburn.

Laith Khalaf, a senior analyst at Hargreaves Lansdown, said: “Things are still heading in the right direction at Persimmon, but the pace of progress is slowing from the breakneck speed attained last year.

“This is a pretty healthy set of results by anyone’s standards, but clearly presents a backward look at performance. The future is not looking quite as rosy as the recent past however, with house price growth moderating and sales not as buoyant as they were. A further worry is the Help to Buy scheme, which has been a lynchpin in the UK housing market. While this still has three years left to run, all eyes will be on the Budget this autumn to see if the Chancellor intends to extend the scheme in some way.

“The house builders have certainly had a good innings, and conditions are still fair with low unemployment, affordable borrowing costs, and the Help to Buy scheme continuing to support demand for now. However there is a growing sense we are getting to the tail end of the house building boom, and that has been reflected in some pretty nasty share price declines this summer.

“Persimmon shares currently stand around 15% lower than at the beginning of June, and that presents a bit of quandary for investors. After factoring in its capital return plans, the house builder now comes with a yield approaching 10%, so shareholders face a difficult choice of whether to take the money, or run.”

Richard Hunter, the head of markets at interactive investor, said: “Persimmon is certainly fixing the roof while the sun is shining, as it reported a sparkling set of figures driven by a number of beneficial factors.

“The Government’s Help to Buy scheme remains a tailwind, as does the historically low interest rate environment and few problems surrounding mortgage availability.

“This has propelled an impressive set of metrics, with earnings per share up 13%, return on capital growing by 14% and gross margin ticking north of 30%, all part of a positive package which has seen pre-tax profit jump 13%. Meanwhile, there is a high quality land bank in reserve, outlook comments are positive and the strength of Persimmon’s cash generation has enabled the continuation of a generous return to shareholders, where a prospective dividend yield of 9.6% is eye-watering.

“Equally, and as seen in the aftermath of the referendum, a poor Brexit outcome would leave house builders in the firing line.

“This is quite apart from any change in government policy with regard to the fillip it currently provides the sector, or indeed any further weakness in sterling which would mean that materials were more expensive. The housing market generally has shown some signs of fatigue, although Persimmon maintains that it is well positioned to weather the economic storm if and when it arrives.

“Despite these positives, investors have been cautious on the industry and on Persimmon in particular.

“A 14% decline in the share price over the last three months has deflated the annual performance, namely a drop of 3% as compared to a 3.6% increase in the wider FTSE100 for the period.

“As such, and aside from the well-deserved hike in the price in early trade, the murmurings that there could be better value elsewhere in the sector has constrained the market consensus, which currently refuses to budge from a hold.”