Housebuilders depend a lot on government policy and regulation. This was evident throughout the 2010s when homeowning was heavily promoted with schemes like Help to Buy and the sector went on a tear. None more so, perhaps, than Persimmon (LSE: PSN) shares, which went up around 20 times in value in less than a decade.
The times
While the shares have stagnated since – thanks to supply cost inflation, costlier mortgages and a cost-of-living crisis – the times they are a-changing. A new government came to power. They want to “build, build, build”. The promise was housebuilding levels more reminiscent of when Bob Dylan still played acoustic! The mooted 300k new homes a year would be a 50% increase on current levels. If that target is to be reached, the private sector must be involved.
So how have Persimmon shares reacted to the news? Well, initially at least, very well. The shares jumped 28% from the date of the election to October, a strong sign of optimism around the company. Then came the Budget and the price dropped 28%, near where it languishes now. The budget was hardly a boon to Persimmon. Rather it wiped out over £1bn of its market value!
So it went up and down by the same amount in percentage terms? Annoying for us Persimmon shareholders, isn’t it? Well, it’s even worse than that! The 28% increase was on a smaller stake than the 28% decrease. So Persimmon shares are worth even less now. A £1,000 stake before the election is worth close to £922 now.
What’s the core of the problem? CEO Dean Finch says he’s looking at a “period of squeeze”. He said that negotiations with suppliers have already hinted at more inflation. The primary causes are likely an increase in the minimum wage and employer’s NI across the supply chain. Those tax hikes will have an effect on Persimmon’s margins directly too, of course.
Am I selling?
There’s a triple whammy here too, and it comes in the way of more stringent regulation. From next year, all new-build houses are having to move away from using gas boilers as part of Net Zero targets to eliminate them completely by 2035. That means builders will be choosing more costly alternatives. It might even mean fewer building completions if certain projects turn out to be unprofitable.
It’s not all bad though. The firm delivered a positive trading update with increases on a raft of metrics. Visitor enquiries and other ‘soft’ metrics remained strong too, a good sign of positive momentum and the direction of where sales will be headed for the next few years. While it hasn’t been a particularly terrific few months for Persimmon, I don’t need to think twice about what I’m doing with my shares. It’s not a Sell for me.
