More on Persimmon
Persimmon: H1 Results
Housebuilder Persimmon said pre-tax profits for the half year to June 2005 rose by 7% to £235m. Turnover increased by 10% to £1.1bn, due to higher average prices (£183,581 against £171,082 last year) but completions dropped slightly to 5,954 units compared to 6,058 last year.
The company admitted that trading conditions weakened in the first half of the year, Persimmon’s growth in the weaker market being attributed to its’ geographic spread and wide range of house types.
The company has increased the use of sales incentives and spent more money on marketing (in order to maintain sales) but has managed to cut costs in other areas thus improving operating margins. Net operating expenses grew by just 5.2% (to £42m) while operating profit margins improved slightly to 23% from 22.8% last year. Gross margins remained stable at 26.6%.
The company is reasonably positive in it’s outlook and says that sales for the second half of the (so far) have been in line with last year. Persimmon expects further increases in sales costs if current market conditions continue but is hopeful that the cut in interest rates will help shore-up demand. No significant reductions in margins are expected for the second half of the year.
Our outlook for the housing market is negative and while Persimmon should be able to meet earnings expectations for the current year, growth in the medium term looks uncertain. Good cashflows and a reasonable payout mean the stock is worth looking at mainly in terms of dividend yield-but at the current price of 799.5p, the yield of 3.7% is not especially attractive.
The prospective PE (on 2005 earnings at the current price) is 6.8x, within the sector range.
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