UK housebuilder Persimmon (PSN) on Tuesday braced shareholders for another subdued year after pretax profit in 2023 more than halved in challenging markets.
Shares in Persimmon fell 3.6% to £13.24 each in London on Tuesday. Morningstar’s fair value estimate for the stock is £23 and our analysts think the listed housebuilding sector is undervalued. The company’s shares are up nearly 9% over one year but are down 3.4% in 2024 so far.
The housebuilder said in 2023 pretax profit slumped to £351.8 million from £730.7 million in 2022, hit by lower volumes and build cost inflation. Diluted earnings per share tumbled to 79.5 pence from 174.3p.
Total revenue decreased 27% to £2.77 billion from £3.82 billion.
Morningstar Metrics for Persimmon Stock
• Fair Value Estimate: £23
• Morningstar Rating: ★★★★★
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High
New Home Completions Down
Persimmon said new home completions totalled 9,922, down one third from 14,868 last year, ahead of initial guidance with strong delivery in the fourth quarter.
The annual dividend was unchanged at 60p per share.
Chief executive Dean Finch said although the near-term outlook “remains uncertain, the significant pent-up demand for homes remains unchanged”.
“We are well placed to manage the ongoing uncertainty and we have good visibility over our land pipeline which, over the medium-term, will support a return to growth in outlets and volumes, alongside improved margins and robust cash generation, paving the way for sustainable shareholder returns,” Finch continued.
UK Housing Market Will be Subdued in 2024
Persimmon said the new financial year had started in line with expectations.
Enhanced competition in the mortgage market and wage growth have contributed to improved affordability albeit it continues to be constrained, the housebuilder said.
Persimmon noted a regional disparity in performance, with trading in southern and eastern counties more challenging with weaker pricing, offset by a more robust trading performance in the northern regions.
Net private sales rate per outlet per week in the first 10 weeks of 2024 were 0.59 against 0.54 in the comparable period in 2023.
Persimmon said it expects market conditions to remain subdued throughout 2024. It expects to deliver between 10,000 and 10,500 completions for 2024, of which it has full planning on 98%, with a housing operating margin in line with 2023.
Build cost inflation is expected to be around 3% to 5% in 2024, with spot inflation currently running at around 1%, Persimmon said.
In 2024, Persimmon expects to use its £700 million revolving credit facility and to move from an average net cash position to an average net debt position. This reflects investment in work in progress in anticipation of a housing market upturn.
Persimmon estimates net finance charges of around £15 million to £20 million in 2024.
