I first bought Persimmon (LSE:PSN) shares just before Covid-19 became a thing. And as a result of the post-pandemic collapse in the housing market, it means I’m sitting on a large paper loss. In these circumstances, it’s psychologically difficult to let go. After all, nobody likes to admit they got something wrong.
But after yesterday’s (11 March) results, I think the company (and the housing market as a whole) may have turned the corner.
Let’s take a closer look.
An improving picture
In 2024, completions were 10,664, a 742 (7.5%) increase on 2023. The group’s operating profit was 14% higher and there was a 10% increase in profit after tax. And despite the squeeze on incomes, it managed to boost the average selling price of its properties.
It also has plenty of land on which to build. At 31 December 2024, it had 82,084 plots under its control. More importantly, 49% of them had detailed planning consent. Based on its current run rate, this should be enough for three years’ building. The government’s emphasis on planning reform is to be welcomed but it’s not going to help Persimmon in the short term.
Looking ahead, the company’s expecting further growth in 2025. It plans to build 11,000-11,500 new homes. But the top end of this range is still 9.6% lower than the 2020-2024 average.
Encouragingly, at 2 March, it had an order book of 7,377 units. And in 2025, it’s expecting its underlying operating margin percentage to improve slightly.
Not so impressive
But despite this positivity, there’s no way to sugar coat the performance of the Persimmon share price in recent times. It’s been dire.
There was a post-election rally in 2024, when optimism about the government’s pro-house building agenda gained momentum. But this soon evaporated when the chancellor decided to increase employer’s National Insurance. To compound matters, she reduced the threshold at which stamp duty must be paid for first-time buyers.
Income investors should be happy
I was first attracted to the company’s shares by the healthy dividend on offer. And as expected, it’s committed to a full-year payment of 60p. This means the shares are currently yielding 4.9%, although my yield’s much lower as I bought at a higher price. But I’m still looking forward to July when the final payout will be made.
Personally, I think the directors could have been more generous. The dividend for 2024 is equal to around 65% of earnings per share (92.1p). In good times, the company’s been known to return well over 90% of profits to shareholders.
But I guess its directors are being cautious. They are probably mindful that there’s no guarantee of a housing market recovery given the apparently fragile state of the UK economy, although lower interest rates should help. However, I shouldn’t be too greedy. The current yield’s still comfortably above the FTSE 100 average.
Overall, I remain positive about the prospects for the company and the sector as a whole. With its strong balance sheet (it has no debt), an average selling price lower than its FTSE 100 rivals, and strong pipeline of both land and orders, I think Persimmon’s well-placed to benefit from the anticipated recovery in the housing market.
For these reasons, I plan to hold on to my shares.
