Persimmon shares fell on Tuesday after the housebuilder announced a full year and operating profit sank in 2023.
Rising mortgage rates were largely to blame for a 27.5% drop in revenue. Operating profit fell to £355m from £1bn.
Persimmon’s numbers today were broadly expected and the focus was always going to be on the outlook. On this front, Persimmon expects to have a marginally better 2024 than 2023, with completions expected to be between 10,000 and 10,500 in 2024 compared to 9,922 in 2023.
The group said it expects the housing market to remain subdued, citing uncertainties around the UK election and mortgage rates.
“Although the near-term outlook for Persimmon remains uncertain, the significant pent-up demand for homes remains unchanged. Persimmon’s average weekly sales rates fell around 16% in 2023, as high interest rates and the removal of the Help-to-Buy scheme have weighed on buyer affordability,” said Aarin Chiekrie, equity analyst, Hargreaves Lansdown.
“As a result, total completions of new homes dropped by around a third to 9,922. These lower volumes, coupled with high levels of build-cost inflation, saw operating profit margins roughly halve. This impact would have been worse if it weren’t for the group’s in-house materials business, which is a key differentiator to peers and offers some relief to inflating costs.”
Persimmon’s net cash took a battering last year, dropping to £420.1m from £1,246m as operating cash flows dried up and Persimmon paid £255m in dividends.
The sharp drop in net cash will raise some eyebrows. Persimmon has been a cash generation juggernaut over the past decade and the halving of net cash demonstrates the challenging time the housebuilder had in 2023.
The reduction of cash will not impact the company’s ability to harness opportunities when growth returns – unless the UK property malaise lasts longer than many expect.
“With interest rates still up at around 5%, this has created something of a standoff between buyers and sellers in 2023, with neither willing to give any ground. The Spring Budget offered little to no incentive for either side, so the focus will now be firmly fixed on the Bank of England and the prospect of impending interest rate cuts later this year,” said Adam Vettese, analyst at investment platform eToro.
