Can this housebuilder carry on keeping income hunters happy? – Fidelity International

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Published 11 August 2022
Fidelity International

Important information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest.
FOR income-hunters, high dividend-payers such as Persimmon (PSN), Britain’s second largest housebuilder, have long been a favourite. However, with all the economic data suggesting the housing market will have to cool and with prices soaring for key building materials, is the party likely to be over sooner rather than later for income-seekers?
Persimmon has openly acknowledged that scarcity of some materials and serious price hikes, coupled with labour shortages, especially among plasterers, have dealt a hammer blow to its bottom line. It saw a 10% drop in the number of homes it built in the first half of the year, having completed 6,652 homes by July, compared to 7,496 over the same timeframe a year earlier. But it said the drop in numbers wasn’t in any way down to a reduction in demand, with customer inquiry levels still healthy and cancellations low.
No one can forecast precisely how the economy-defying housing market will react, but with Halifax reporting the first fall in house prices in more than a year, and the Bank of England announcing its biggest increase in interest rates in 27 years, it would make total sense if the housing market did start to cool. But will it?
Fellow housebuilder Bellway (BWY) doesn’t seem to think a housing market downturn is on the cards any time soon, even staring into the face of yet higher interest rates and the growing cost of living crisis. It has just reported a record year of sales and is confidently predicting a bumper 2023.
It will be interesting to see what Persimmon has to say when it posts its first-half results on Wednesday (17 August). The housebuilder has already said we can expect to see total revenues fall, yet forward sales come in slightly higher than this time last year at £1.87 billion. It expects to complete 14,500 to 15,000 homes in 2022, compared with 14,551 last year and says that first-half profits will be slightly higher than expected, because house price inflation has offset rises in build costs.
Last month Persimmon said it has already sold around 75% of its planned homes for the year. And with the average selling price to owner occupiers up 12% at £280,700, it may be selling fewer properties but each one at a higher price. And this isn’t a one-off for July – overall its average selling price increased by 4% year-on-year, to £245,600 in the first half. Strong demand and a reduction in the proportion of homes sold to housing associations are paying dividends for Persimmon.
Let’s not forget its share price has suffered this year; largely as a result of the scandal over the build quality of it homes. The £75 million it has set aside to address this though is only 10% of last year’s pre-tax profits, so a figure that shouldn’t put too large a dent in its financials. Or hopefully its dividend pay outs to shareholders.
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.
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