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Persimmon shares fall as it reports flat third quarter sales

Persimmon said the total sales rate per site was flat in the third quarter
Persimmon shares are under pressure

Persimmon PLC (LON:PSN) shares fell after the housebuilder said sales growth stalled in the third quarter. 

In a trading update for the quarter to November 7, the company said the total sales rate per site was flat due to tough comparatives in the year-ago period, which rose 14% with strong sales following the Brexit vote.  

READ: Barclays downgrades a trowel-full of house-builders ahead of Budget

Persimmon also said total sales outlet numbers dropped 10% in the autumn period to date, though customer enquiries and levels of visitor traffic to its websites remained "healthy". 

Shares declined 3.78% to 2,765p in afternoon trading.

The group said customer activity strengthened as consumer confidence proved resilient despite Brexit uncertainty, supported by high levels of employment, low borrowing costs and the government’s Help to Buy scheme.

Competition between lenders for new business also supported the housing market, sending mortgage approvals up 7% in the third quarter.

Forward sales up 10%, pricing remains 'firm'

Persimmon is fully sold up for the current year and has around £909mln of forward sales reserved beyond 2017, an increase of 10% on the same period last year. Pricing remains “firm” across regional markets, the company added.

The group said it remains focused on investing in new land to “support the delivery of superior returns and cash generation over the longer term” but it has had challenges in receiving planning consent from local authorities.

“We are keen to work with all stakeholders taking part in the government's Housing White Paper consultations to establish more effective planning processes which will allow the industry to increase the number of active outlets and overall output of new homes built,” Persimmon said.

Persimmon sees strong land conversion

Persimmon bought 5,526 new plots and spent £147mln including payment of deferred land creditors, during the period. It converted 48% of the plots from its land portfolio.

“We anticipate that the group will achieve strong strategic land conversion over the next couple of years as local authorities complete their plans to identify sufficient land to meet the assessed housing need in their local communities,” it said.

“Management will marshal the group's cash resources to ensure these reinvestment requirements are adequately supported.”

The group expects to hold increased cash balances at 31 December 2017, subject to the timing of further land investment.

During the period, the company opened 95 new sales outlets in the first half of the year and has launched a further 61 through the second half to date.

It said it has made “good progress” in constructing new sites and expects to open a further 35 sales outlets before year-end.

Shore Capital sees growth slowing

Shore Capital repeated a 'sell' rating and target price of 2,874p, saying: "At this stage and based on this statement we would not look to change forecasts and we would actually draw greater confidence that our view that growth will be much slower especially in fiscal year 2019 and we are happy to remain at below consensus and forecast relatively flat pre-tax profit (PBT) in 2019 vs 2018. Our PBT estimate is for £932mln for the current year and £975mln for FY2018F."

The broker, which dowgraded Persimmon at its interims, said it is a "very strong business" but the rating is "just too stretched" with the shares trading on a price-earnings ratio of almost 11.5x next year and now yielding 4.7% - good for the market but low relative to other house builders.

"We continue to see stiffening headwinds for the house builders from a softening market climate with a much weaker pricing outlook, rising costs and a loss of confidence in pricing by both buyers and estate agents," it said.

"We still believe that there is serious threat of a mean reversion in margins as lower house price inflation means that margins will no longer be able to exceed the initially expected returns when land was acquired: this could mean a drop in gross margins of 200-300 basis points across the sector from 2019."


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