Persimmon encouraged by strong trading post-Brexit

Housebuilder Persimmon guided to higher full-year margins after 'encouraging' trading following the EU referendum but expressed caution about new land investment due to the uncertainty arisen since the vote.

In a trading update from 1 July to 1 November, the company said it expects the operating margin to improve in the second half of the year from 23.8% in the first half and said that cash balances at the end of the year are likely to increase from £570.4m last year.

The private sales rate since 23 August was 19% ahead of last year, leading on from strong summer sales and up from the 17% in September.

The FTSE 100 company is fully sold up for the current year and has about £757m of forward sales reserved beyond 2016, which is a 4% increase from last year.

A brickwork factory near Doncaster is also to be opened in the first quarter of 2017 to extend the company’s manufacturing capabilities.

Having spent £116m buying 7,580 plots of land during the period, Persimmon aims to invest in high quality new land to sustain shareholder value over the long term and said that the government’s planning policies under the National Planning Policy Framework had allowed the industry to assess the long-term risks when making investments in the short term in order to increase the number of new homes built.

But management recognised the “uncertainty surrounding the potential impact of the EU referendum result on the UK economy may continue for some time” and while remaining cautious about new land investment “have continued to progress attractive opportunities on a selective basis”.

After opening 108 housing developments in the first half, 102 further sites have been launched in the second half to date, with about 45 more sites expected by the end of the year.

Looking ahead, the company also plans to open a regional operating business near Nottingham on 2 January, bringing the total number of new businesses opened in the last two years to five.

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said recent data on the housing market has been confused as banks to report slowing mortgage approvals and stalling house prices, but housebuilders have said sales remain strong, which could be due to the Help to Buy scheme which was to encourage building and supports demand in the sector.

“Nonetheless, Persimmon looks to have been preparing for tougher times ahead. The group expects increased cash balances at the year end, and is reducing investments in new land. More cash in the bank and a more cautious approach to investment suggest the group is laying foundations to weather a coming storm.”

Neil Wilson, markets analyst at ETX Capital, said the housebuilder also pointed to a potential skills shortage, which highlights one of the consequences of Brexit.

“Turning off the cheap labour tap comes with its own cost and Persimmon might struggle to find the people it needs to build homes. With major infrastructure projects like Heathrow and HS2 in the mix as well, Britain will find it harder to fill skilled roles.”