Despite the fall in the first half of the year, foundations for the housing group look strong with solid order book for second half of the year.
Persimmon reports drop in revenue
- Revenues fell by 30% in first half of the year to £1.19bn, yet remained above consensus estimates of £1.13bn
- Group acknowledges encouraging forward order book with forward sales at June 30 of £1.89bn, an increase of 15% compared to 2019
- With the 2019 dividend suspension, the Group’s final dividend will be re-evaluated in the second half of the year as the business remains confident in its ability to manage the crisis
- Recommendation: Uncertainty remains over the state of the future economy post-crisis and housebuilding’s cyclical nature does tend to be impacted by this, therefore we maintain our ‘Hold’ recommendation
Persimmon issued a strong update this morning, entering the second half of the year in a strong position despite sales and revenues falling in the first half. This was to be expected considering the disruption during lockdown. In the six months to June 30th, revenues fell 30% to £1.19bn off the back of legal completions falling to 4900 from 7584 from the half year prior. However, the revenue figure was still above consensus estimates of £1.13bn. Looking ahead, Persimmon acknowledge an encouraging forward order book, with forward sales at June 30th of £1.89bn, an increase of 15% compared to the year prior with cancellation levels still similar to historic trends. With the 2019 dividend suspension, the Group’s final dividend will be re-evaluated in the second half of the year as the business remains confident in their ability to manage the crisis.
It should be no surprise to investors to see the falls in revenue from this latest update considering the halting of construction activity for several months during the lockdown period. However, investors should take some positive signs away from this update with Persimmon seeming to be well equipped to navigate the current crisis, something which will create confidence considering the profit warning from Redrow, a peer in the sector. Persimmon has always benefitted from a robust balance sheet with ample amounts of cash, £830m to be precise, something which they may use to their advantage coming out of the crisis. This has also removed the need to rely on the government job retention scheme. Furthermore, the group boast a strong land bank, not relying on particular areas for sources of income but having good diversification across the country.
All in all, this has been a strong update for Persimmon which has seen its share price rise roughly 5% in early trading. It is definitely encouraging to see building activity returning to normal levels by period end and that net reservations over the last six weeks have been roughly 30% ahead of year on year figures. This is something which investors will be relieved to see, and they can remainhopeful that it will contribute to a revival of the dividend towards the end of the year. Despite this, there still remains uncertainty over the state of the future economy post-crisis and housebuilding’s cyclical nature does tend to be impacted by this. Therefore we continue to have this stock as a ‘HOLD’ for investors willing to accept a medium to higher level of risk.
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