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Persimmon keeps schtum over cash plans as the housebuilder's sales slow

The FTSE 100-listed firm's expects group pre-tax profits to be in line with market consensus

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Persimmon PLC (LON:PSN) had a huge cash balance of £844mln at the end of 2019 even though new home sales fell compared to the previous year as the firm focused on improving build quality.

In its year-end 2019 trading update, the FTSE 100 housebuilder made no comment about its intentions for this cash nor about the state of the housing market after a year when completion volumes fell 3.6% to 15,855 and average selling prices (ASPs) were flat at £215,700

READ: Persimmon takes its time over new builds, shrinking sales

Looking to the year ahead, Persimmon said it was “in a strong market position” with an order book modestly down at £1.4bn, 365 developments in construction across the UK, plans to open 80 more in the first half of the year and a “conservative balance sheet”.

“Delivering the maximum benefit to our customers from our quality and service improvement initiatives will continue to be my top priority for 2020,” said chief executive Dave Jenkinson.

Jenkinson and the builder's board expect group pre-tax profits to be in line with the average analyst forecast, which is for just over £1bn.

Reacting to growing complaints in recent years about shoddy and potentially unsafe homes, punitive leasehold terms and an excessive executive bonus scheme, the group has looked to refurbish its tarnished reputation, slowing the pace at which homes are sold in order ensure they are completed on time and to an acceptable standard.

This led to the group's revenue falling 2.4% to £3.65bn last year and flattened ASPs, partially because of a higher proportion of sales from its housing association partnerships, which increased to 21.4% of the sales mix from 18.9% the year before. The ASP for private sales was up 1.5% at £241,975.

Return to volume growth ahead

Moving into 2020, Persimmon said its total forward sales value stands at almost £1.4bn, up from £950mln in November.

The shares were up 2% to 2,848p on Wednesday morning, approaching their all-time high from summer 2018. 

Analysts at UBS said completions volumes were slightly above the City consensus, mainly driven by higher affordable housing sales.

They predicted that Persimmon will return to volume growth in 2020, noting that completions were only down 1% year-on-year in the second half after a 6% decline in the first.

Richard Hunter at Interactive Investor said that having "grasped the nettle" on build quality, this could lead to "a rather more comfortable 2020", even though the combined threat of removal of the Help to Buy scheme some years ahead and Brexit negotions in the coming year "casts a shadow over the sector.

Even so, he said Persimmon has much in its favour, including a deep land bank, strong balance sheet, and recent history of lofty special dividends that leads to a projected dividend yield of over 8%.

   --Adds share price, broker comment--

Quick facts: Persimmon

Price: 3049 GBX

LSE:PSN
Market: LSE
Market Cap: £9.72 billion
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