1st Mar 2023 11:34
(Alliance News) - Persimmon PLC's bleak outlook is yet another troubling data point adding to the gloomy picture of the UK property market, analysts contended.
The York-based housebuilder on Wednesday warned of a squeeze on margins to come in a "tough" year ahead.
Persimmon said revenue rose 5.7% to GBP3.82 billion in 2022 from GBP3.61 billion in 2021. Pretax profit fell 24% to GBP730.7 million from GBP966.8 million, however. This reflects a GBP275.0 million increase in Persimmon's provision for building safety remediation, which relates to flammable cladding.
Liberum said Persimmon's operating profit of GBP1.01 billion for 2022 was marginally ahead of market consensus of GBP1.00 billion and its own estimate of GBP984 million.
Looking ahead, Persimmon said its current outlet network would imply 8,000-9,000 legal completions in 2023, but it is too early for any certainty.
"If current sales rates persist for the rest 2023, full-year completions are expected to fall by more than 40%, which would take a huge bite out of revenues," said Hargreaves Lansdown equity analyst Aarin Chiekrie.
Shares in Persimmon plunged 8.9% to 1,323.00 pence each in London on Wednesday morning. The stock has fallen 43% in the past 12 months.
"Investors have been pricing in a sharp downturn in the housing sector for months, but each new data point showing further cracks in the industry has only served to take share prices even lower," said AJ Bell investment director Russ Mould.
Persimmon warned that margins could be hit by around 500 basis points by lower average selling prices and cost inflation, with another 800 basis point hit from reduced volumes and increased sales incentives and marketing costs.
"Welcome to a new era of chaos for the housebuilders," Mould said.
Persimmon's results come as new data from Nationwide showed a 1.1% annual drop in UK house prices in February. House prices were 3.7% down from their peak in August.
"Higher mortgage costs, worries about job security, pressure on household finances from broader inflation and concerns about the economic outlook have created a cocktail of problems for people looking to move house and that's caused a ripple effect in the property market," explained Mould.
In addition, the Bank of England said mortgage approvals fell 2.2% in January from December, marking the fifth consecutive month of lower approvals.
"The longer-term fundamentals of the UK housing market remain strong, but short-term headwinds are creating lots of waves for Persimmon," HL's Chiekrie added, noting "significant" build cost inflation will squeeze the firm's margins.
Persimmon proposed a 60p final dividend, which will be the only payout for 2022 and less than half of 125p paid in total for 2021.
"Recession fears aren't going to abate anytime soon, so efforts to conserve cash now are a wise move," noted HL's Chiekrie, adding: "But the market hasn't liked a 75% cut in the dividend."
By Elizabeth Winter, Alliance News senior markets reporter
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