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Persimmon optimistic about 2021 as profit takes a hit

Saleha Riaz
·3-min read
Persimmon is targeting a full return to 2019 levels of new home completions in 2022. Photo: Getty Images
Persimmon is targeting a full return to 2019 levels of new home completions in 2022. Photo: Getty Images

Housebuilder Persimmon (PSN.L) announced its total revenues and underlying profit before tax both took a hit in 2020 amid the economic fallout of COVID-19, but the company is eyeing a full recovery to pre-pandemic levels.

The company was among the FTSE 100's (^FTSE) top risers on Wednesday morning, with shares up 4.7%.

The group's total revenues for 2020 were £3.3bn ($4.6bn), down from £3.6bn in 2019, with new housing revenues of £3.1bn, down from £3.4bn a year ago.

Profit for 2020 was £784m, down from roughly £1bn in 2019.

Persimmon made 13,575 completions over 2020 14% below 2019 but in line but with expectations, as record sales in the second half mitigated production down 50% in the second quarter.

Persimmon's stock rose Wednesday morning in London. Chart: Yahoo Finance
Persimmon's stock rose on Wednesday morning in London. Chart: Yahoo Finance

However average selling price came in at the top end of expectations at £230,000, nearly 7% above last year's average.

This highlighted “the resilience of the UK house prices even within a pandemic. In total this led to a slight beat over consensus operating profit,” noted Ben Nuttall, senior analyst at market intelligence firm Third Bridge.

Persimmon has also said it is targeting a full return to 2019 levels of new home completions in 2022.

“From 2023, with a stable market, we expect our enhanced quality, service and efficiency capabilities to provide the opportunity to grow further. We are focused on bringing more outlets into production to support these targets,” it said in a statement.

The company has also decided to restore its annual rate of dividends to 235p per annum, to be paid in three instalments between March and December.

READ MORE: Taylor Wimpey unveils £125m cladding fund as dividend returns

This comes as its current sales are around 7% ahead of the pre-pandemic level and the group has a record forward order book and is boosting its land buying activity back up to around £500m a year.

“Persimmon stands out from the pack. It takes a more cautious stance than some, but achieves higher margins and cash generation across the cycle as a result," said Steve Clayton, manager of the Hargreaves Landsdown (HL.L) Select UK Income Shares fund, which has a position in Persimmon.

"They operate outside of London and have much less exposure to tall buildings and the cladding remediation costs that other players are facing. With land investment rising and build rates picking up, Persimmon is moving into a period of measured growth," he added.

He noted that Persimmon's 2021 performance could depend on what chancellor Rishi Sunak announced in his budget later on Wednesday, with expectations of stamp duty holiday extensions and support for first time buyers running high.

Nuttall also said "Many are expecting a stamp duty holiday extension so if the chancellor takes a different path housebuilders such as Persimmon will feel the repercussions."

He added that “something that Persimmon won't escape dealing with will be new environmental building regulations, which are expected to add around £5,000 to each house build. However, our experts say it is unlikely to impact Persimmon's profitability as the cost is more likely to be shared by house buyers and land values.”

Persimmon vowed last month to put aside £75m to fix potentially unsafe cladding on buildings it constructed. The housebuilder announced that cladding on 26 blocks it built may need to be removed.

Earlier this week, Taylor Wimpey (TW.L) also announced it will resume paying dividends and set aside £125m for post-Grenfell cladding and other fire safety work on its apartment blocks.

WATCH: What do stamp duty cuts mean for home buyers?