Persimmon sees something to build on

Persimmon's results were as bad as expected - but it suggested that the worst may be behind it...

Last Updated: 31 Aug 2010

Persimmon posted its results for the six months to June this morning, and the picture was predictably grim. With pre-tax profits down 64% year-on-year to £100m as falling house sales and prices squeezed its margins by almost a third, it’s taken the brave step of slashing its dividend by 73% to conserve cash. However, it also said that sales volumes had been holding pretty steady since April – which helps to explain why its share price still enjoyed a 10% bounce this morning…

Today’s news from Persimmon was more or less in line with City predictions. The pre-tax profit was slightly lower than expected, as its average selling price slid by 4% to £181,485 (thanks partly to the fact that it’s working on more social housing projects). Completions were down 31% and forward sales (for the second half) down 38%, which is likely to leave its full-year figures about 10% below expectations. It’s also written off £40m from the value of its land-bank, spent about £9m on advisers and set aside £15m for restructuring costs. Meanwhile its net debt has crept up to £905m. So you can’t blame it for wanting to keep some cash in the bank, even if the dividend cut will go down badly in the City.

On the other hand, there was some slightly positive news, if you were prepared to look hard enough. Chairman John White said things were at least not getting any worse: ‘Whilst at the beginning of April we experienced a significant market downturn, sales volumes since then have not deteriorated any further’. What’s more, viewing levels have remained ‘reasonable’, while cancellation rates appear to have stabilised at about 33%, down from 40% earlier in the year, which suggests there may be some small degree of confidence returning to the market. The company's also a lot leaner than it was, after shedding 2,000 jobs, shutting down three offices and scaling back its operating costs (it reckons this will save about £45m a year).

So the 10% jump in its share price this morning perhaps isn’t as strange as it looks at first sight. According to the FT, Persimmon stock is the third most popular with short-sellers, who bet on the stock continuing to slide – today’s news may have suggested that after a dismal year, the share price may be somewhere near bottoming out, encouraging some traders to close out their positions. The housebuilder itself was cautious, suggesting that ‘it is difficult to predict the short term future with confidence’ until current economic conditions improve. But it’s clearly hoping that the foundations of recovery are now in place...

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