Persimmon hikes dividend further amid encouraging planning outlook

Housebuilder Persimmon further increased its capital return plan as annual revenue and pre-tax profit rose strongly and it remained on track with its growth strategy.

On top of the 110p per share special payment announced for 3 July as a second interim dividend, the FTSE 100 company announced an additional payment of 25p to be paid on 31 March.

Revenue for 2016 grew 8% to £3.14bn compared to the previous year, which resulted in 23% growth in underlying pre-tax profit to £782.8m and a 19% increase in underlying basic earnings per share to 205.6p.

The operating margin increased to 25.7% and the return on average capital employed grew to 39.4% from 32.1%.

During 2016, the company gained 18,709 plots of land, with 11,268 plots successfully converted from its strategic land portfolio, while forward sales increased 9% to £1.89bn.

At the end of the year Persimmon had net cash of £913m, up from £570.4m the previous year.

Chairman Nicholas Wrigley said: "The group has now completed the first five years of its long term strategy which remains focused on growing Persimmon into a stronger, larger business while maintaining capital discipline and robust free cash generation.

"Customer activity in the early weeks of the 2017 spring season has been encouraging. The further increase in the capital return plan demonstrates the board's confidence in the group's prospects."

In the first eight weeks of the 2017 spring season, visitors to its 390 active sites have been 7% ahead year on year and current total forward sales, including legal completions taken so far in 2017, have reached £1.89bn, 9% ahead of the previous year.

Overall private reservation volumes in the forward order book were 6% ahead of last year allowing for the first eight weeks private sales rate per site being 4% lower at this point, with a "modest" selling price improvement.

He said that the company was encouraged by the government's action to seek improvements in the planning system with the consultation measures included in the recent housing white paper.

“By opening new sales outlets in increasing numbers, together with investing in training skilled trades people, the industry will be able to expand output and fulfil the housing needs of local communities across the UK.”

Land from its strategic portfolio is "expected to provide an increasing proportion of building plots with detailed consent" and management intends to retain sufficient cash resources to take advantage of these market opportunities as they arise.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said that the Brexit-shaped dent in Persimmon’s share price has almost entirely been repaired by brisk trading and a resilient performance from the economy.

“Business so far this year also appears to have continued in a manner which will confound sceptics, and in a show of strength Persimmon is extending its already prodigious capital return plan, which will mean more cash paid back to shareholders. The UK’s housebuilders have had the wind at their back for some time now, with the government's Help to Buy scheme boosting transaction numbers, while a chronic housing shortage has pushed prices up too.

“Looking forward, the UK housing market shows little sign of pausing for breath in its steady upward climb, and low interest rates are likely to remain supportive for the foreseeable future. This should enable the housebuilding sector to continue to make profitable progress, unless a sharp economic downturn materialises.”

Shares in Persimmon were up 1.04% to 2,046 at 0850 GMT.