The Persimmon (LSE: PSN) share price is doing what it has done for some years now: falling. It’s down 3% today (13 August) following publication of what at first glance looked like a solid set of half-year results.
Long-term investors have endured a rough ride. The FTSE 100 housebuilder is down 28% in the last 12 months and almost 55% over five years. The sector has been battling affordability issues, planning delays and stubborn inflation since the Brexit vote in 2016.
Back in 2015, the shares were close to 2,000p. Today they trade at just over 1,100p. Dividends have followed the same pattern. In 2022, the board paid 235p per share. Last year, investors got just 60p. The falling share price has driven up the trailing yield to 5.43%, but that’s cold comfort for those who bought in happier days.
Completions and profits higher
Today’s figures show resilience. Private completions rose 7% to 3,987 homes, while total completions climbed 4% to 4,605. Revenue jumped 14% to £1.5bn. Underlying pre-tax profit rose 11% to £165m, helped by higher volumes and what management calls “ongoing operational discipline”.
The average private sale price jumped 7%, helped by “robust pricing” and a higher proportion of Charles Church homes. The private forward order book is up 11% to £1.25bn, with total orders at £1.86bn.
Despite the tough backdrop, full-year guidance was left unchanged at 11,000 to11,500 completions, with housing margins expected between 14.2% and 14.5%. The interim dividend was held at 20p. RBC Capital Markets noted that key operating metrics were moving in the right direction and judged the results “stronger and more robust” than peers.
FTSE 100 recovery target?
Sadly, the macro picture is less reassuring. The Bank of England expecting inflation to edge up from 3.6% in June to 4% this autumn. It did cut base rate to 4% anyway, but markets reckon we might see just one more cut this year at most. Tax rises in the autumn Budget will keep pressure on buyers.
The UK economy is struggling to hit housebuilding targets. That makes it hard to see a rapid recovery in construction activity.
For investors, the question is whether today’s valuation already reflects the gloom. On a price-to-earnings ratio of 12.33, the shares could appeal to contrarians willing to take a long-term view, especially with the yield above 5%.
Dividend income while waiting
Buying before the shares go ex-dividend on 16 October would give investors access to that 20p interim payout. The income may compensate as we wait for a recovery.
I already have exposure to the sector via Taylor Wimpey, which has been painful. I thought its valuation and dividend were compelling three years ago, but it’s struggled too. That said, I think the sell-off has gone too far.
Anyone prepared to hold through the volatility and collect dividends could consider buying at this level. The challenge will be sitting tight until the housing market finally turns. In the meantime, there’s the comfort of income and the hope for better days to come. Persimmon may be impossible to ignore, but it’s still risky to buy.
