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Persimmon Warns on Earnings, Cuts Dividend by 75% as Builder Keeps Eye on Housing Market Slump
- Inflation could cost margins 500 basis points by 2023, with another 800 basis points at risk
- Persimmon’s dividend has been cut from 235p last year to just 60p next year
- The homebuilder expects to complete 8,000-9,000 transactions in 203
Persimmon has issued a profit warning and cut its dividend by 75 percent as the British builder faces a slowing UK housing market.
The homebuilder, which began slowing demand in the second half of last year, told investors Wednesday that its 27.2 percent underlying profit margin for 2022 could be cut by 500 basis points, or 5 percent, as a result of 8 year-over-year cost inflation. per cent.
Margins could fall an additional 800 basis points (8 percent) due to lower volumes and higher sales incentives and marketing costs. The builder said his weekly sales figure had nearly halved.
As a result, Persimmon has cut its dividend from last year’s 235 pence to 60 pence.
Sales have been hit as the UK housing market has slowed significantly over the past year
Persimmon shares fell 9.2 per cent in early trading to £13.18, bringing year-over-year losses to 43 per cent.
The UK housing market has slowed in recent months as higher mortgage rates and broader economic concerns drive home buyers away and falling house prices squeeze margins.
Britain’s largest construction company, Nationwide, reported today that house prices are falling annually for the first time since the start of the pandemic.
Persimmon’s average weekly net retail sales currently stands at 0.52, compared to 0.96 a year earlier.
Current forward sales are £1.52bn, including an average private sale of £810m, with an average sales price of £288,638 ‘indicating that prices remain firm’.
Persimmon said that while it is “too early” to assess a full-year sales figure, the current numbers imply 8,000-9,000 legal completions for 2023, up from 14,868 in 2022 and 14,551 in 2021.
Persimmon is not alone among peers warning of the impact of a slowing housing market, with Barratt Development, Redrow and Bellway reporting severe contraction in their order books last month.
Group CEO Dean Finch said: “The market remains uncertain. Our marketing campaign has helped improve the group’s sales numbers in the new year from the lows of late 2022, but they still remain lower year on year.
“We have managed our prices carefully, recognizing the improved value and energy efficiency of our product during these difficult times and selling prices have proved resilient.
“We acted quickly to boost sales, control costs and preserve cash, prompting a prompt slowdown in new land investments in the fourth quarter of last year.
“Nevertheless, the sales figures of the past five months mean that deliveries will fall significantly this year and, as a result, margins and profits will fall as a result. However, it is still too early to give firm guidance.’
However, Persimmon performed better than expected last year given deteriorating market conditions.
Underlying profit before tax rose 4 percent to just over £1 billion in the year to 31 December, compared to an average analyst estimate of £983.4 million.
Interactive Investor Chief Markets Richard Hunter said: “Persimmon has delivered a commendable performance given the challenges of the past year, although the current outlook is a bit more worrying.
‘All things considered, housing is currently in trouble and the price development reflects the turning of the tide.
Shares of Persimmon are down 40% over the past year, compared to a 7.4% jump for the broader FTSE 100, despite a more recent relief rally of 14% over the past three months, which has been largely reversed. in early trading after these results.
Perhaps more striking is the effect on the overall picture of the stocks. After a long period of positive consensus, including Persimmon as one of the favorite games, the market consensus on the stock has now shifted to a sell, implying that in terms of the economic cycle, the worst is yet to come.”