Margins improved and sales growth accelerated in the third quarter at house builder Persimmon PLC (LON:PSN).
The shares advanced in a falling market, putting on 16p at 1,753p, as the company reassured investors that the EU referendum vote had not slowed customer visits to its sites; in fact, the number of visits was well ahead of last year, it said in a trading statement covering the period from the beginning of July to the start of November.
Back in late August, the house builder reported a 17% year-on-year increase in the sales rate, but this has improved to 19%.
The group is fully sold-up for the current year and has around £757mln of forward sales reserves beyond the end of the year, up 4% on the situation a year earlier.
While potential house buyers have been paying little mind to the implications of Britain’s drawn-out exit from the European Union, they have responded to the reduction in the bank base rate, while first-time buyers continue to make enthusiastic use of the government’s “Help to Buy” shared equity scheme.
Pricing remains firm across Persimmon’s regional markets, the company declared.
The group announced a further investment in its manufacturing facilities, with the construction of its new “Brickworks” factory, near Doncaster. The factory is set to be commissioned in the first quarter of next year.
“Management has said in the statement that it expects margins to rise in the second half compared to the 23.8% achieved in the first half of the year. We believe that consensus expectations are based on an assumption that margins would be flat in the second half, suggesting that we could see upgrades to consensus on this announcement,” said Liberum Capital Markets.
“A degree of caution ahead of 2017 has led to a slowing land spend, with only £116mln being spent so far in the second half. We think this is appropriate as the group has a very long land bank (eight years) that it can afford to run down somewhat,” the broker added.
Shore Capital Markets also noted the increase in margin guidance, and although it lamented the lack of detail in just how much margins are expected to improve, it provisionally indicated it expected to increase its current full-year profit before tax (PBT) estimate of £750mln by £10-15mln – an increase of around 1.5%.
“So, a new forecasts for FY2016 will be around £760-765mln PBT with EPS [earnings per share] 194p fully diluted. Consensus is £741mln,” the broker added.
“On this update we remain positive on Persimmon and retain our BUY recommendation. We will raise or fair value estimate by 25p for the upgrade from 1750p to 1775p. The decision to invest further in the supply chain is another positive that we believe can drive the fair value higher again but we will defer this until after the Capital Markets Day tomorrow which is focused on the Space4 offsite construction facility,” Shore said.