18th Aug 2015 08:00
LONDON (Alliance News) - FTSE 100-listed housebuilder Persimmon PLC on Tuesday said its pretax profit surged in the first half as it boosted margins, sold more homes and did so at higher prices, all while saying that its performance thus far in the traditionally slower summer selling season still looks robust.
Shares in the company were down 1.3% to 2,093.00 pence in morning trade, reversing sharply after opening higher.
The group said its pretax profit for the six months to the end of June was GBP272.8 million, up from GBP208.9 million a year earlier, as the group's total revenue rose to GBP1.33 billion from GBP1.20 billion and its underlying operating margin rose to 20.5%, a 280 basis point rise year-on-year from 17.7%. The group said its return on capital employed on a rolling 12-month basis at the end of the half was 27.5%, up from 21.7% a year earlier.
The group said it sold 6,855 new homes in the half, up from 6,408, with the average selling price of those homes up by 4% to GBP194,378. Persimmon said customer activity in the first half remained healthy throughout the period and improved after the General Election in the UK in May, which had slowed activity somewhat.
The main driver of the sales increase came for homes under the Persimmon brand. Homes sold under the premium Charles Church brand reduced as the group focused on a fewer number of sites. Homes sold via the Westbury Partnerships housing association venture rose to 1,100 from 988 a year earlier. The group's current forward sales position is at GBP1.71 billion, 12% ahead year-on-year.
Persimmon said it acquired 11,539 plots of land in the half, bringing its consented land bank to 92,404 plots. The sharp improvement in margins in the first half was driven by the strategy launched by Persimmon in 2012 to invest in high-quality replacement land, the company said. Though continually renewing its outlet network, the group has managed to cut the cost of land recoveries on its legal completions, it said, and has further improved margins by expanding its output consistently, which has allow it to build efficiencies and overhead recoveries.
In addition to the strong trading in the first half, Persimmon said it has entered the second in strong shape and said its private sales rate has been up 5% year-on-year since July 1, with visitors to its sites in line and cancellation rates at lower levels.
Jeff Fairburn, Persimmon's chief executive, said the group has entered the traditionally lower summer weeks for the UK housing market, but said trading thus far "is a reflection of the continuation of healthy customer demand".
Persimmon said stronger employment levels in the UK and higher disposable income levels should help to support the property market, adding it was encouraged by the growth in mortgage lending in the first half. On the back of this optimism on the wider market, the company intends to further ramp-up build activity and productivity going forward in order to back the sustainable growth of the business in all of its regional markets.
It has already opened 28 new sites in the second half so far and plans to open a total of a 100 over the period.
The group is not paying an interim dividend but said it paid its third distribution from its capital return plan in the half of 95 pence per share. So far, the group has paid out GBP733 million, or 240 pence per share, in surplus capital to shareholders out of a long-term commitment to pay out GBP1.9 billion of capital over the ten years to June 2021.
"Persimmon has traded well in the first half of 2015. The group continues to take advantage of the current market opportunities to deliver sustainable growth whilst also utilising its excellent cash generation to build a strong asset platform for the future," said Fairburn.
"Persimmon continues to make hay while the sun shines, with a set of numbers which have tested even the most optimistic of expectations," said Richard Hunter, the head of equities at Hargreaves Lansdown Stockbrokers.
Hunter added the margin improvements booked by Persimmon were well ahead of the disappointing numbers posted by smaller rival Bovis Homes Group PLC on Monday, when the company saw its shares close down 3.9% as its profit rise missed market expectations and its net profit margin only improved by 10 basis points, compared to the 280 basis point improved tabled by Persimmon.
"Along with strong cash generation and a net cash position, revenues and indeed profits are comfortably ahead. The ongoing return of capital implies a projected dividend yield of just under 5%, which is punchy given the interest rate backdrop," Hunter said. Though he acknowledged that a rate rise in the UK is likely to crimp mortgage demand for a period, "the demand and supply housing imbalance is playing into Persimmon's hands" in the meantime.
By Sam Unsted; [email protected]; @SamUAtAlliance
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