Persimmon PLC (LSE:PSN) investors' and analysts' eyes will be on whether forward contracts can compensate for the FTSE 100 housebuilder's lag in project completions on Wednesday after it was hit by supply shortages.
A gloomy trading update in July sent a shiver down the spine of investors, causing its shares to fall sharply.
The housebuilder, which will release its first-half results midweek, guided for an 8% drop in turnover to £1.7bn and slower project completions in the first half, citing planning delays and staff and materials shortages.
This compounded pressure on its share price, which has fallen 40% since a peak in early 2020 and 35% for the year to date.
Ahead of next week’s interim results, analysts’ consensus forecast is for a stronger second half and that Persimmon will report an 11% increase in sales for the year to £3.8bn.
Despite an increase in average selling prices, which have risen 4% to £245,600, supply shortages could affect its operating profit as its July update guided for some degree of margin erosion.
According to Persimmon's July update, completed builds fell 10% to 6,652, a poor performance against its targeted volume growth for the year of 4-7%.
Final figures for forward sales and its order book will be key next week, as well as any plans it might have to expand or contract its offices on the ground from 290 as of April, according to analysts at AJ Bell.
On 7 July, Persimmon signalled a fractional increase in forward sales to £1.9bn that may insulate it from macroeconomic and political headwinds affecting the sector.
Gregor Kuglitsch, analyst at UBS, said: “The incremental information will... be on margin, current trading and the outlook.”
UBS predicts earnings before interest and tax (EBIT) margin of 27.4% and pre-tax profit of £447mln for the first half.
Much of the housebuilder’s yearly performance will depend on prevailing market conditions.
Against a backdrop of rising inflation, higher interest rates, lagging consumer confidence, an end of the stamp duty holiday and closure of the government’s Help to Buy scheme, the outlook for builders is not getting any better.
Sector valuations are at their lowest since 2013, according to Credit Suisse. This has left housebuilders potentially undervalued due to the disconnect with high prices, as they contend with supply shortages and rising interest rates.
Persimmon had £1.25bn of net cash at the end of 2021, a stash that it is using to help fund its plan to return 235p to investors per share per year.
After making payouts to shareholders in April July its cash stores reduced to £780mln on 30 June, according to analysts.
Persimmon has set aside £75mln, among the lowest among its peers, to remediate dangerous cladding, chief executive Dean Finch indicated in July, which could prove unrealistic.
“For the longer term, the UK still has a housing shortage, mortgage availability remains high and relatively cheap by historical standards and there are no obvious signs from any of the political parties that the housing market is one with which they wish to tamper,” said Richard Hunter, head of markets at interactive investor, in July.