In uncertain times, like the current stock market crash, FTSE 100 housebuilding stocks can take a real beating. The Barratt Developments (LSE: BDEV) and Persimmon (LSE: PSN) share prices both suffered an outsize hit after the Brexit referendum. The same is happening, due to the coronavirus crisis.
The Barratt share price is down almost half from its January peak, while the Persimmon share price has fallen almost as far. However, during this week’s tentative rally, the two stocks leapt around 35% in a few days. This suggests these FTSE 100 big guns could be a great way to play the stock market recovery, once the worst is over.
We aren’t there yet. Both stocks have fallen around 7% this morning as the crash resumes, faster than most on the FTSE 100. However, once the Covid-19 threat recedes and the stock market crash bottoms out, you may be glad you bought them.
Barrett share price plunge
Housebuilders generally are having a tough time right now, with Redrow, Berkeley Group and Crest Nicholson cancelling or scaling back dividends in recent days.
On Wednesday, Barratt cancelled its dividend, saving £100m, and suspended all financial guidance. It also shut down construction sites, sales centres, and offices. It has halted land buying, recruitment and non-essential capital expenditure. But it’s continuing to pay suppliers and sub-contractors. It may restart dividend payments when publishing full-year results in September.
Persimmon share price pain
Persimmon has also cancelled its dividend, while embarking on the orderly shutdown of construction and sale sites. Clearly, this is going to hurt. If they aren’t selling houses, they won’t generate any revenues, but still have costs.
FTSE 100 housebuilders are in a much stronger position than during the 2008 stock market crash. Barratt assures investors it’s in a “position of strength, with a robust balance sheet, a highly skilled workforce and an experienced board.” Meanwhile, Persimmon said its “long-term strategy of minimising financial risk and maintaining capital discipline” leaves it well placed.
In October, Barrett reported £200m of net debt, offset by £958.3m in cash, giving it net cash of £758.3m. Persimmon has no debt on its balance sheet. This has allowed both to pay such generous dividends, with the two stocks yielding 6.56% and 12.28%, before this week’s cancellations.
Stock market recovery in sight?
The unknowable questions are when will the stock market crash bottom out? And how much long-term damage will it leave behind? Housebuyers may be too shaken to meet today’s inflated prices, even if their income has held up, although near-zero base rates will help.
But the UK housing market is resilient and underpinned by an excess of demand over supply. The Barratt share price trades at 6.53 times earnings, while the Persimmon share price is yours at 7.79 times, so current fears are reflected in their share prices.
The stock market recovery could take time, but Barratt and Persimmon should be at the forefront when it finally does come.
Harvey Jones 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.