New House Sales Slump
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All change!
A year ago, Britain's biggest homebuilder was quite upbeat.
As recently as February, Persimmon (LSE: PSN) was still expressing cautious optimism about UK housing market prospects for the second half of 2008. But today's AGM statement was singing a very different tune.
Construction on new sites has been shelved after a 24% sales slump this year and a climb in cancellations. And this time, the company is very wary of forecasting any sort of upswing.
At last April's AGM, Persimmon was talking stable markets, slightly higher selling prices and a potentially strong second half. Cancellation rates stood at historically low levels and the board "remained confident of prospects for 2007 and beyond".
Yet today, Persimmon reveals that 2008 revenue has tumbled to £1.37bn from £1.8bn last year, on volumes 18% lower. There was something of a dearth of supporting numbers, although the builder conceded that cancellations had "increased".
And apparently most of the damage has been done in the last three weeks, as "unprecedented tightening" in the mortgage arena has hit the housing market harder and "extensively reported concerns" about the credit crunch have further eroded consumer confidence.
I wondered when the media would get the blame.
Anyway, Persimmon is now being forced to chop prices and sweeten up buyers with sales incentives, both hurting margins. And unless the financial backdrop changes, "the market will become more challenging".
Pinning its hopes on recent Bank of England moves to revive mortgage lending, the builder urges more assistance for first-time buyers by increasing the stamp duty threshold, as well as more interest rate cuts.
Here, Persimmon is unsurprisingly banging its own drum. But surely first-time buyers would be best aided by house prices falling to much more sensible levels. Or maybe that's far too bindingly obvious a solution. And it certainly wouldn't help builders.
Back to the statement...for the forecast...
Persimmon now admits to having no idea when the market will pick up, clinging to the pious hope that "at some stage" activity will improve as Britons need to live somewhere.
In the meantime the company claims to be focusing on keeping a tight rein on cash and costs to protect both balance sheet and the profit and loss account.
Though what immediately struck me was the company's confession that at the end of March, borrowings had leapt to £1.03bn. At end-December 2007, net debt was £656m. Even with April being the time of peak seasonal borrowing, that's a concern despite the builder's assurance that current banking facilities provide "comfortable headroom".
Persimmon's AGM being held at York Racecourse does focus the mind on whether the shares are now a good bet...
Falling knife
Britain's housing market may take a long time to recover. I personally believe it could be several years before property prices rebound.
Certainly the short-term news isn't good. Mortgage approvals declined by almost 50% last month to the lowest March level since 1996 as banks withdraw loan offers, according to yesterday's release from the British Bankers' Association.
I've been bearish on the house builders since mid-2007. Yet though expecting UK share prices to weaken across the board, two months ago I suggested that having suffered horrendous underperformance over the previous 12 months, Persimmon probably wouldn't undershoot the market much further.
One or two Fools castigated me for not being more positive.
Well, up to a week ago, that assessment looked OK. But within the last few days, Persimmon has plumbed new relative and absolute depths. Today's price plunge, 8% at time of writing, has dropped the shares to their lowest level since August 2004.
Maybe from now, the stock won't depreciate much further against the rest of the market. Though I admit I'm starting to lose confidence even in that less-than-sanguine expectation.
More: Pyad Likes Persimmon
