Homebuilder Persimmon (LSE: PSN) announced its results for the first half of the year today, and the figures were better than expected.
For the six months to the end of June, Persimmon’s profit-before-tax increased 31% to £273m. Revenue increased 11% to £1.3bn and underlying basic earnings per share jumped 43% to 78.6p. The number of homes sold by the company during the period increased 7% year-on-year to 6,855. The average selling price achieve by the company during the first six months of the year grew by 4% to £194,378.
What’s more, alongside Persimmon’s impressive headline figures, the company reported an impressive improvement in all of its underlying business performance metrics. Return on capital employed — a key measure of profitability compared to assets — increased by a third to 27.5%, and free cash generated by Persimmon during the first six months of the year rose 57% to £191m. The company ended the half with a net cash balance of £278m.
Still, despite Persimmon’s impressive set of performance figures, it is management’s outlook for the rest of the year that has really excited investors.
Bright outlook
Persimmon’s chief executive Jeff Fairburn announced alongside today’s results that Persimmon sees a “good autumn selling season” ahead, and lenders are “increasingly competing for greater number of customers”, which is likely to fuel demand for housebuilding in the coming months. This is great news, not just for Persimmon but also for the likes of Bovis Homes (LSE: BVS), Berkeley (LSE: BKG) and Barratt Developments (LSE: BDEV).
However, Bovis, Berkeley, Barratt Developments and Persimmon are all currently trading at or near 52-week and five-year highs, which could put some investors off. But with further housing market growth expected, these companies do not seem overpriced to me at present levels.
Time to buy?
City analysts currently expect Persimmon’s earnings per share to jump 17% this year, although these forecasts haven’t been adjusted to reflect today’s figures. Still, based on historic figures, Persimmon is currently trading at an undemanding forward P/E of 14.5.
Indeed, after factoring in Persimmon’s earnings growth rate of 17%, the company’s shares are trading at a PEG ratio of 0.8 implying that the shares offer growth at a reasonable price. Also, Persimmon’s shares are set to support a dividend yield of 4.7% this year.
Similarly, Barratt and Bovis both trade at PEG ratios of less than 0.5. For example, Barratt’s earnings per share are set to jump 43% higher this year. The company currently trades at a forward P/E of 14.7 and offers a dividend yield of 3.8%. Bovis currently trades at a forward P/E of 11.9, a PEG ratio of 0.4 and supports a dividend yield of 3.4%. Unfortunately, Berkeley’s earnings per share are projected to fall slightly this year. Nevertheless, a rebound is expected during 2017. Analysts have pencilled in earnings growth of 54% for 2017, which puts Berkeley on a 2017 P/E of 9.2.
And while City growth projections for these companies may seem optimistic, today’s statement from Persimmon’s management leads me to believe that these firms are likely to meet or even exceed forecasts.
