Earnings: why Persimmon shares plunged today

A negative outlook statement for 2023 has driven housebuilder Persimmon’s shares lower today, but the market fundamentals are strong.  

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Stack of British pound coins falling on list of share prices

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Housebuilder Persimmon (LSE: PSN) delivered its full-year results today and the shares are almost 10% lower than they were yesterday.

However, with the share price near 1,319p, it’s now down around 43% from its level a year ago. 

A negative outlook for 2023

It seems the outlook statement did the damage today. Chief executive Dean Finch said the market for new homes “remains uncertain”.  But the company’s marketing campaign helped improve sales rates in the new year from the lows seen at the end of 2022. But they still declined year on year. 

Finch said sales prices have been reslient. And the company “responded quickly” to the general housing market malaise last year to “stimulate sales, enhance cost controls and preserve cash”. And on top of that, the directors slowed new land investment in the fourth quarter of last year. 

Nonetheless, Finch reckons sales rates over the last five months mean completions will be “down markedly” in 2023. And that will lead to lower profits. However, the directors haven’t provided any forward-looking guidance on likely trading figures.  

The big danger for investors now is the inherent cyclical nature of the firm’s operations. For example, if the new homes market deteriorates further, it’s possible Persimmon shares may move lower. But, on the other hand, there’s undeniable recovery potential in the business.

But it’s always tricky trying to time an investment into the shares of a cyclical company like Persimmon. Nevertheless, there are plenty of positives in the figures. For example, new homes completions rose a little last year. As did new home selling prices. And underlying profit before tax increased about 4% year on year.

But there could be more pain ahead for shareholders. You see, the current forward sales figure showed a decline from the number a year ago. It stands near £1.52bn, compared to £2.21bn 12 months earlier. And City analysts expect earnings to fall by almost 50% this year.

Strong market fundamentals

The company said the forward sales position reflects the “significant” drop in private sales rates in the fourth quarter of 2022. But cancellation rates have since “reverted back to typical historic levels”.

Meanwhile, shareholder dividends are on the slide. There’ll be a final dividend for 2022 of 60p per share, intended as the “only dividend in respect of financial year 2022”. And for 2023, the directors expect to maintain the 2022 dividend with a view to growing it over time.

For context, shareholders received total dividends of 235p per share in 2022, representing the capital return from the 2021 trading year.

Despite this belt-tightening, Finch said that looking further ahead beyond 2023, the fundamentals underpinning demand for new homes are strong. And the firm is targeting “disciplined growth in the coming years”.

Overall, Persimmon is not an easy stock or business for investors to analyse right now. So doing plenty of research seems important before jumping in and buying any shares.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

Buying 8,617 Legal & General shares would give me a stunning income of £1,840 a year

Legal & General shares offer one of the highest dividend yields on the entire FTSE 100. Harvey Jones wants to…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

£25k to invest? Here’s how I’d try to turn that into a second income of £12,578 a year!

If Harvey Jones had a lump sum to invest today he'd go flat out buying top FTSE 100 second income…

Read more »

Union Jack flag in a castle shaped sandcastle on a beautiful beach in brilliant sunshine
Investing Articles

2 lesser-known dividend stocks to consider this summer

Summer is here and global markets could be heading for a period of subdued trading. But our writer thinks there…

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

Here’s how I’d aim to build a £50K SIPP into a £250K retirement fund

Our writer outlines the approach he would take to try and increase the value of his SIPP multiple times in…

Read more »

Investing Articles

9.4%+ yields! 3 proven FTSE 100 dividend payers I’d buy for my Stocks and Shares ISA

Our writer highlights a trio of FTSE 100 shares with yields close to 10%. He'd happily pop them into his…

Read more »

Mixed-race female couple enjoying themselves on a walk
Investing Articles

Are Raspberry Pi shares a once-in-a-lifetime chance to get rich?

With Raspberry Pi shares surging after a successful IPO, could this UK tech startup offer a long-term wealth creation opportunity…

Read more »

Newspaper and direction sign with investment options
Investing Articles

Huge gains and 9% yields: why now’s an amazing time to be a stock market investor

The stock market’s generating fantastic returns in 2024. Whether you're looking for gains or income, it’s a great time to…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

This steady dividend payer looks like one of the best bargain stocks in the FTSE 100

A yield of 4.7% and a consistent dividend record make this FTSE 100 company look like good value in an…

Read more »