Housebuilder Persimmon completed the sale 14,868 new homes in 2022 shaking off the cost-of-living crisis, but see their sales rate deteriorating significantly in 2023.

Home sales were at the top end of expectations in 2022 and the builder pushed on with a higher build rate of 276 units per week than 2021’s 255 per week.

However, the company are now seeing falling sales rates as the impact of higher interest rates and soaring mortgage rates curtail demand for new homes.

Persimmon said forward sales were down 36% to £1bn and private forward sales were down 56% to £0.5bn.

“Persimmon have followed in the footsteps of rival housebuilder Barratt, warning of a material slowdown in demand over the fourth quarter as consumers battle higher mortgage costs. This fed through to lower sales rates, higher cancellations, and a hefty drop in forward orders.  Though, it must be said, a lot of that was largely expected,” said Matt Britzman, Equity Analyst at Hargreaves Lansdown.

The visibility of falling sales meant the declines have been largely priced into Persimmon shares throughout 2022 when the stock lost more than half of its value. On Thursday, Persimmon shares jumped 6% on confirmation declining sales were better than the worst case scenarios.

Rising housing prices helped offset building cost inflation but inflationary pressures are expected to cap margins through 2023. Analysts at Third Bridge highlighted the difficulties in the labour market that are likely to persist for the foreseeable future.

“Getting enough trained staff on site is getting harder thanks to an exodus of foreign workers and a lack of interest in the construction industry from the younger generation,” said Zainab Atiyyah, Analyst at Third Bridge.

Online fashion retailer ASOS experienced falling revenue at the end of 2022 due to a challenging macro backdrop. The retailer also see losses in the first half of 2023.

It is very difficult to take away out-and-out positives from the ASOS update; revenue is falling, losses are expected in H1 2023, and free cash flow for full year 2023 is expected to be negative.

Nonetheless, ASOS shares surged in early trade on Thursday following their update for the four months to 31st December.

The results were not as bad as they could have been, and the company was very positive about a bounce back in H2 2023 when they foresee cash generation increasing, as well as profitability.

The ASOS cash position would be a relief for investors. The retailer said they had the availability of £430m in cash and undrawn facilities that is likely to see them through to the second half without any undertaking any drastic capital raising.

Although shares were higher on Thursday, there are concerns among analysts about the health of ASOS’ margins in the current economic environment.

“Our experts think the outlook for Asos’s sales and margin growth is going to remain pretty challenging in 2023. Especially as many of their existing customers are set to trade down to lower-cost Asos products from more expensive and higher-margin items,” said Zainab Atiyyah, Analyst at Third Bridge.

ASOS share were 14% higher at 586p at the time of writing.

At the time of writing, The FTSE 100 was trading at 7,742, the highest level since July 2018 as economic sentiment showed signs of improving and strong corporate results helped lift the index.

After a gloomy end to 2022, investors were becoming more optimistic on the outlook for the year ahead. A Chinese reopening is being seen as a tailwind for the global economy and the US is enjoying lower inflation rates.

“Ahead of US inflation numbers on Thursday, markets were relatively upbeat with a good showing on Wall Street last night which spilled over into a positive sentiment among investors in European stocks,” said AJ Bell investment director Russ Mould. 

“It helped that a speech by Federal Reserve chair Jerome Powell yesterday didn’t contain any shocks which would cause investors to worry about markets even more.”

A day after Goldman Sachs said they no longer saw a recession in the Europe in 2023, European indices surged with the DAX gaining 1.11% and French CAC 1%.

UK retail

The FTSE 100 was also helped higher by strong results from UK retailers. JD Sports said of their stores had a record Christmas trading period and revenue in the 22 weeks to the end of December increased by 10%.

JD Sports update followed similarly strong results from Next last week and helped Fraser Group shares higher. JD Sports were the FTSE 100’s top riser gaining 6% while Fraser Group jumped 3%.

Although Sainsbury’s shares were negative on the day, the supermarket said they had a record festive trading period as like-for-like sales rose 5.9%.

Barratt Developments shares slipped after the housebuilder said forward sales were down around 29%, despite a strong finish to 2022.

Admiral was the FTSE 100’s top faller, down 8%, after FTSE 250 peer Direct Line shares were smashed 27% lower on higher than expected claims for bad weather.

JD Sports showed no signs of the cost of living crisis in their Christmas trading update with revenue increasing 10% in the 22 weeks to the end of December last year.

Shrugging off any concerns around the health of the consumer, JD Sports said they expected group profit before tax for the year to be at the upper end of current forecasts of £933 million to £985 million.

JD Sports shares were 6% higher at 149p at the time of writing.

The company said many of their websites and stores had achieved record sales figures in the run up to Christmas, as a result of their focus on improving the experience for their customers.

“This is a story of the survival of the fittest. Weaker retailers have fallen by the wayside as the likes of Next and JD have come to the fore – the latter even enjoying highest ever weekly sales in the run-up to Christmas,” said AJ Bell investment director Russ Mould. 

“This is testament to the continuing appeal of the brands which fill JD’s stores and to a youthful consumer who are often living at home and therefore don’t have utility bills, rent or a mortgage to pay.”

“JD is also benefiting from improved availability of products and easing shipping costs – two headwinds which had an impact on profitability in 2022.”

Direct Line shares were down 27% on Wednesday after the insurance group scrapped their dividend due to higher than expected claims due to bad weather.

Total claims are now expected to be £140m, significant higher than the previously estimated £73m. Claims associated with the cold weather are expected to be around £90m.

Having paid out £1.5bn of capital over the last 5 years in dividends to investors, the sharp jump in claims meant Direct Line are being forced to scrap their final dividend for 2022.

Direct Line also said they were writing down the value of their property portfolio by £45m due to a softer property market.

“News that Direct Line won’t be issuing a final dividend this year has rattles markets, with shares down around 27% in early trading. December’s cold spell has caused a significant increase in bad weather claims, with the estimated cost somewhere in the region of £90m,” said Matt Britzman, Equity Analyst at Hargreaves Lansdown.

“To make matters worse, motor claims ticked higher as well as third party claims inflation. All in, the fourth quarter presented some serious challenges, and the end result is a weaker capital position with the dividend on the chopping block. It’s not too surprising to see the dividend some under pressure though, the forward yield’s been trending above 10% for most of the second half of 2022 and looked likely to be revised lower at some point.”

Despite pressures from bad weather, train strikes and the like it was apparent that the customers of the Nightcap (LON:NGHT) bars continued to increase its cheer.

The thirteen weeks leading up to and just after the Christmas festivities saw the portfolio of 36 cocktail and late-night bars across the country report a 60.9% increase in revenues. 

Expansion through a programme of organic growth aided by new strategic openings has been impressive.

Revenues for the 26 weeks to 1 January 2023 were £23.2m (£15.9m), the improvement clearly showing that the Nightcap group bars have proved popular with its target customers.

CEO Sarah Willingham stated that:

“To achieve quarterly growth of 60.9% in revenue and 4.7% growth on a like-for-like basis represents a monumental effort, not least during a time when rail unions deliberately chose a number of the biggest most important weeks and weekends for hospitality, for their series of significant rail strikes, including the incredibly important Christmas weeks.

During the first half of our current financial year we also successfully opened another six phenomenal bars across the country, while also delivering record breaking amounts of corporate Christmas parties and a New Year’s Eve which was sold out across most of our 36 sites.

This result is a testament to the resilience of our high disposable income Millennial and Gen Z customers, who continue to enjoy social interactions in a fun party atmosphere in our bars across the country.”

Second Half confidence

Looking forward to the second half of the financial year, the group’s Board has confidence that, in the absence of further rail strikes or other major interruptions, the group will trade in line with management’s expectations.

Analyst Opinion 

Matt Butlin at the group’s brokers Allenby Capital currently has estimates out for the year to end June 2023 for takings rising to £49.3m (£35.9m), with adjusted EBITDA of £3.67m (£3.31m), pre-tax profits of £399,000 (£24,000), taking earnings up to 0.55p (0.23p) per share.

For the coming year his figures suggest an increase in takings to £58.0m, EBITDA £5.0m, a leap in profits to £1.67m, with earnings almost doubling to 1.04p per share.

Conclusion – looking for price recovery

The shares of this £18.1m capitalised bars group offer significant price recovery prospects.

Since the group’s IPO in early 2021 they have been up to 35.5p and have subsequently been down to 6.5p. 

Now at just 8p they have good upside potential as the group pushes forward into 2023.