26th Apr 2023 12:46
(Alliance News) - Persimmon PLC was the top blue-chip performer on Wednesday in London, around midday, after the housebuilder said its trading over recent weeks has offered some signs of "encouragement".
The stock was up 6.6% to 1,317.00 pence each as Persimmon reported that the number of visitors to its sales offices was up, cancellation levels were normalising, and sales rates were continuing a steady improvement.
"If sales rates continue at the levels seen year-to-date, we would expect full year 2023 volumes to be toward the top end of the previously indicated range of 8,000 to 9,000 completions," Persimmon said.
The York, England-based firm said net private sales per outlet were 0.62 in the first quarter of 2023, doubled from 0.30 in the final quarter of 2022, though still well short of 0.98 in the first quarter of 2022.
Shares in fellow UK housebuilders Taylor Wimpey and Barratt Developments climbed 3.1% and 2.8%, respectively, in a positive read-across.
Davy Research wasn't overly impressed by the Persimmon update, however.
"A modest improvement in sales rates will be welcome from Persimmon, but in general any rebound in demand has been underwhelming through the spring selling season. We do not expect to change forecasts on the back of today's statement," said analyst Colin Sheridan.
Persimmon reported that new home completions fell 42% to 1,136 in the first quarter of 2023 from 1,950 a year previous, which the company attributed to the reduced forward sales position.
Year-on-year, the company's forward sales position fell 30% to GBP1.7 billion from GBP2.4 billion. Quarter-on-quarter, however, its forward sales position improved from GBP1.0 billion at the end of 2022.
Russ Mould, investment director at AJ Bell, said if you were to only look at the headlines about a 42% drop in new home completions then you might be somewhat perplexed by the advances made by Persimmon's share price on Wednesday.
However, Mould said the market is not going to be surprised by a slowdown which has been factored into valuations for "some time" and was expected by "pretty much everyone".
"The reason for the relative optimism is the improved sales rate in the first quarter and the expectation that build rates will hit the top of the guidance range. Mortgage rates are such an important metric for the sector and an improvement here is helping to stoke demand," he said.
However, Aarin Chiekrie, equity analyst at Hargreaves Lansdown, warned that with build cost inflation showing no sign of easing, "as well as a cocktail of other headwinds" facing the company, he expects Persimmon's operating margins to take a "significant" hit moving forward.
"While this isn't ideal, it's worth remembering that housebuilders are cyclical businesses that go through periods of ups and downs. Persimmon's in-house materials business should offer some relief to inflating prices where materials are concerned. But still, the outlook for the rest of the year remains challenging, and things could continue to get worse before they get better," he said.
Chief Executive David Finch said that Persimmon has an excellent pipeline of new land opportunities to support growth in 2024, subject to planning. He added that the company has a "strong platform" from which to grow outlets and volumes as the UK housing market recovers.
By Heather Rydings, Alliance News senior economics reporter
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PersimmonTaylor WimpeyBarratt Developments