Rapid New Build Market Recovery Gives Persimmon Share Price 7% Boost

Published On: July 10, 2020Categories: Stocks & Shares2.7 min read

The Persimmon share price has surged by around 7% in trading today after the FTSE 100 housebuilder reported an impressive leap in sales over recent week. Over the six weeks after lockdown restrictions on the housing market were lifted, Persimmon recorded 30% sales growth on the same period a year earlier.

Pent up demand was clearly a factor but the pace of recovery demonstrated is hugely encouraging. Over each of the six weeks of the period reported on, Persimmon sold an average of 278 new homes. The company’s order book for forward sales is also around 15% up on where it was this time last year, at £1.9 billion. Cancellation rates remain at around historic averages and the percentage of buyers purchasing their first home has held steady at around 50%

persimmon plc

Dave Jenkinson, Persimmon’s outgoing chief executive, admitted to being a “little bit surprised”, at the strength of the bounce back. However, it has justified the company’s decision not to furlough any staff over the lockdown. That allowed work on completions to be quickly resumed as soon as the strictest lockdown restrictions were loosened.

Early indications suggest that the new build residential property market is recovering more quickly than that for homes that have already been lived in changing hands. A June survey by the Royal Institute of Chartered Surveyors showed average numbers of second hand homes for sale by real estate agencies at 39 properties per branch. That is close to historic lows.

Over the 6 months to the end of June, Persimmon sold a total of 4900 homes. That was a 35% drop on the same period last year, with sales halted for a period of some weeks over lockdown. Revenues were down by the slightly lower 32%, thanks to a higher average selling price of £225,050, compared to £216,942 a year earlier.

Mr Jenkinson did, however, caution that the company felt unable to make any forecast for the outlook over the remainder of the year, saying:

“You can make the case for demand increasing on the back of the government stimulus and the government support. You can also say demand is going to reduce with unemployment and reduction of the furlough scheme.”

He also commended the recent government decision to temporarily suspend stamp duty on property purchases of values under £500,000 despite the fact that it isn’t expected to have a major impact on the company. Around 50% of its sales are anyway to first time buyers who are exempt of stamp duty on purchases up to £300,000.

He also said the decision not to extend the Help to Buy loan equity scheme was justified in the context of the current strength of the new build market, despite the fact it has helped make Persimmon the country’s most profitable housebuilder. The last two years have each seen the company generate profits of over £1 billion. He commented:

“We will wait and see until the autumn selling season to see if it’s required but it isn’t required at the moment. I think the government’s got it spot on.”

He also remarked that the evidence Persimmon has seen so far does not suggest their customers are having difficulty in securing mortgages despite some banks and building societies withdrawing products for first time buyers and those with smaller deposits.

All of Persimmons construction sites have now reopened and are operating at 95% capacity thanks to lower density than would be typical of more urban developments. That has made workers respecting social distancing much easier.

About the Author: Jonathan Adams

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