10th Jan 2024 11:53
(Alliance News) - Persimmon PLC said it entered 2024 with an improved forward sales position, while analysts said it ended 2023 above guidance on house completions amid a tough two years for the housebuilding sector.
Housebuilders have operated in a climate of inflationary pressures on costs and higher interest rates "putting the dream of home ownership out of reach for many people", AJ Bell investment director Russ Mould said.
The York, England-based housebuilder completed 9,922 homes in the 12-months ended December 31, down a third from 14,868 in 2022. But Peel Hunt said this was above previous guidance of 9,500 homes and "comfortably" above Peel Hunt's own forecast of 9,000.
Average selling prices rose slightly to GBP255,750 from GBP248,616 over the year. Peel Hunt said this was in line with its estimate.
Persimmon's land spend in 2023 was around GBP430.0 million, GBP260.0 million of which was used to settle with land creditors, down from GBP664.0 million in 2022. However, as of December 31, the company's cash had halved to GBP420.0 million from GBP862.0 million. Persimmon promised that "disciplined management" of cash and costs remains a priority going into 2024.
However, Persimmon said that it enters the new year with an improved forward sales position, up to GBP1.06 billion from GBP1.04 billion at the end of 2022. Private forward sales are up 11%, alongside a 4% value increase to GBP499.0 million.
"Persimmon's trading statement released today showcase the company’s resilience amidst the challenging market conditions for UK housebuilders. The previous forecast of 9,500 new home completions were surpassed, the average selling price was up by 3%...and current forward sales was up 2%," said Edison analyst Andy Murphy.
"Rising mortgage rates, lower buyer demand and inflated costs of raw materials have taken its toll on the housebuilding company as new home completions for 2023...[were] down a third from the previous year."
AJ Bell's Mould added: "A decent end to the year has breathed some life into Persimmon after a patchy start to 2023 which saw a profit warning and a dividend cut last March. While it saw a sharp decline in new home completions, the number achieved was better than expected. Average selling prices were also resilient.
"Hope that interest rates could start to come down in 2024 has already led to lower rates on mortgage deals, which in turn should lead to more people having a go at trying to buy a property. Tentative signs of this trend are already in motion. However, rates are unlikely to come down rapidly, and so housebuilders aren't suddenly going to see a flick of the switch which turns the property market back to full health."
Last month, the Bank of England kept the UK bank rate at a 15-year high of 5.25%. Starting in December 2021, the BoE had rapidly increased the bank rate from a Covid-19-induced low of 0.10%.
While Persimmon predicts that market conditions will remain "highly uncertain" ahead of the 2024 general election, it said that "longer-term demand for new homes remains favourable".
Persimmon said easing mortgage rates and moderation of build cost inflation will benefit both its completion rates and house sales.
"There is some positives coming from falling mortgage rates and there appears to have been some traction on Persimmon's most recent marketing campaign. There is also some moderation in build costs which should benefit 2024 completions," said UBS analysts Gregor Kuglitsch, Marcus Cole and Reece Frankland.
"The previous [over] 30 gross outlet opening for the spring selling season is unchanged although there is less clarity on what the average net position change will be over 2024."
Commenting on Persimmon's outlook, Peel Hunt analysts Sam Cullen and Clyde Lewis said: "Private sales are ahead of last year's level, which should not come as surprise given the difficulties of autumn 2022. The order book is 11% ahead of the prior year, and up 4% in value terms, with a private average sale prices of GBP266,100.
"Guidance and comments on estimated 2024 trading are understandably limited, but the recent fall in mortgage rates should help, leads are building post the Christmas period, and build cost inflation should continue to moderate."
Peel Hunt rates Persimmon shares at 'hold' with a price target of 980.0 pence. Similarly, UBS rates them at 'neutral', though with the higher price target of 1,445p.
Davy also rates Persimmon at 'neutral' with a price target of 1,393p, while Jefferies rates it at 'hold' with a target of 1,181p.
The stock was up 3.5% to 1,440.00p each in London on Wednesday morning.
By Greg Rosenvinge, Alliance News senior reporter
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