24th Feb 2015 09:58
LONDON (Alliance News) - Homebuilder Persimmon PLC Tuesday joined peer Bovis Homes PLC in reporting a big rise in profit for 2014 driven by higher home sales at higher average prices, and said 2015 had got off to a solid start.
Like Bovis, which reported on Monday, FTSE 100-listed Persimmon expects a slight slowdown in the market around May's General Election, but said the improving UK economy and increased mortgage lender support for the Help to Buy scheme would drive the market for 2015 as a whole.
Persimmon reported a pretax profit of GBP467.0 million for 2014, up from GBP337.1 million in 2013, as revenue rose to GBP2.57 billion, from GBP2.09 billion. Legal completions rose 17% to 13,509 homes, while its average selling price rose 5.3% to GBP190,533.
The company said its underlying operating margin, which excludes exceptional items and goodwill impairment, improved to 19.0% in the second half of 2014, compared with 18.4% for the year as a whole, up from 16.0% in 2013. That was down to strong control over development costs, and improved efficiencies from increased build productivity and overhead recoveries, the company said.
Return on capital employed rose 40% on the year to 24.6%.
Persimmon said it has had an encouraging start to 2015 and experienced a solid opening period to the spring season. Its current total forward sales of GBP1.49 billion are 5% ahead of the same stage in 2014. Half of the 120 outlets it has planned for the first half of this year are already open, and it expects to be building at about 400 active outlets by June 30, up from about 375 active sites at the start of the year.
"This encouraging start has been supported by low cancellation levels, leading to our weekly private sales rate per site being 5% stronger than the prior year for the first eight weeks. The reduction of stamp duty on house purchases for the majority of home buyers introduced in the Autumn Statement last year is supporting sentiment and reducing costs for potential house buyers," it said.
The statement echoed that of FTSE 250-listed Bovis, which had also reported a jump in pretax profit after its revenue rose in 2014 on the back of higher house sales, and said it was also increasingly positive about its prospects for 2015.
Like Bovis, Persimmon has been active in the land buying market. Land prices are not increasing anywhere near as fast as the rise in house prices, which Bovis put down to discipline by housebuilders who are experiencing high labour costs.
Persimmon said it acquired a further 26,822 plots of land in 2014, and it converted 9,386 plots across 39 sites from its strategic land ban to its land portfolio with planning permission.
"We are currently actively developing all sites that have an implementable detailed planning consent and look forward to opening as many new sites as soon as possible to replace those which will sell through in the near future," the company said.
Despite the land investment, Persimmon generated GBP388 million of free cash before capital returns during the year. It held GBP378 million of cash at the end of the year, up from GBP204 million a year earlier. Its return on capital employed rose to 24.6%, from 17.6%.
Persimmon recently committed to delivering GBP1.9 billion, or GBP6.20 a share, of surplus capital to shareholders over the nine-and-a-half year life of a strategic plan it has developed. So far, it has returned GBP442 million to shareholders, or 145p a share.
On Tuesday, the company said it would further accelerate the capital return, reflecting the 2014 performance and its confidence in 2015. It said it will now make a 95 pence-a-share return in early April, having previously scheduled the payment for early July.
Despite the strong results and outlook, Persimmon shares were down 4.1% at 1,640.46 pence Tuesday morning, making it the worst-performing stock in the FTSE 100 on the day. Analysts said the good news had already been priced into the stock.
"In our view, the group is a strong performer and well managed. However, we also believe that the valuation assumes a glass that is overflowing rather than half full," said Jefferies analyst Anthony Codling. Jefferies has an Underperform rating on the stock and a 1,222.00 price target.
"Although we rate Persimmon as 'best in class' within the sector and believe that the group will continue to report results towards the top end of sector averages, the current premium rating appears about right to us," added Panmure Gordon analyst Rachael Applegate. Panmure Gordon has a Hold rating on Persimmon and a 1,553.00p price target.
By Steve McGrath; [email protected]; @stevemcgrath1
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