Persimmon's H1 drags house builders higher, bodes well for sector in 2016

UK house builders are topping the FTSE 100 leaders ladder today thanks to Persimmon's chipper interims, prompting some to highlight the sector's 2016 potential.

The sector has turned in a lumpy performance over the past 12 months, but it had zipped higher after a dive immediately after the 23 June non-binding Brexit vote.

At about 12:53 BST, the FTSE 350 household goods and home construction index was up 1.57%, against rises of 0.63% and 0.53% by the FTSE 100 and FTSE 250 respectively.

"The sector as a whole (is) trading on an average earnings multiple of nine, and juicy dividends thrown in to boot," said IG senior market analyst Chris Beauchamp.

"The sector may have the chance to be one of the second-half's star performers," he said in a note.

Some basis for this assertion was seen in Persimmon's results, which saw pretax profit up 29% to £352.3m, with revenue, completions and average selling price all improving.

Perismmon, like many of its blue-chip pals, noted lingering Brexit uncertainty with the market unsure of what comes next, but also the robust customer interest it was presently enjoying.

"The group is now trading through the traditionally slower summer weeks but customer demand remains encouraging and we anticipate a good autumn sales season," Persimmon said.

This fetched investors' attention and saw Persimmon's shares up 3.99% to 1865.5p by 13:02 BST.

Same time, Barratt Developments was ahead 3.98% to 481.85p, and Berkeley Group gained 3.45% to 2638p. Also up were Bellway, Bovis Homes, Cairn Homes, Redrow and Telford Homes, among others.

Mike van Dulken, head of research at Accendo Markets, noted Persimmon's margin expansion, reservation rates, more limited exposure to London compared with peers, and overall outlook.

"The future for the UK's beloved housing market thus still appears bright," he said. "Phew!"

JPMorgan Cazenove's Emily Biddulph added that she saw sector dividends as "highly sustainable and (we) see an average of 15% upside to price targets here."

"Long order books and a good current market trends mean that we see little scope for companies to miss on 2016 earnings," she said in a recent research note.

"However, we still believe it is prudent to expect weaker economic conditions to impact demand for housing in 2017."