Decade-long dividend bonanza in prospect at Persimmon -UPDATE

28th Feb 2012 07:14

Persimmon is the latest housebuilder to post results this week and its strategy of improving margins, investing in quality land and paying down debt, has proved successful in the face of difficult housing market conditions. It is the above which this morning has led the company to announce that its intention over the next decade is to return £1.9bn in surplus capital to shareholders, even as it grows and becomes stronger, while all the time maximizing its return on capital employed.Underlying pre-tax profits increased 55% to £148.1m, higher than market expectations of £141.1m. Full year revenue slipped to £1.54bn from £1.57bn in 2010. Operating margin increased to 10% from 8.2% in 2010; with second half improvement to 10.8%.The group, which has a focus on first-time buyers, said it continued to benefit from an improved operating margin as it kept a tight grip on development costs.Legal completions fell slightly to 9,360 compared to 9,384 the year before and the average selling price fell by 2% to £166,142 reflecting a greater proportion of first time buyer homes in the sales mix.Looking ahead, chairman Nicholas Wrigley said, "We have made a strong start to the year, with forward sales up by 9.4% to £927m. Visitor levels and reservations continue on an improving trend and, although we expect the UK housing market to remain difficult, Persimmon is in a strong position to meet this challenge."Persimmon said the encouraging improvement in visitor levels and reservations noted first in the Autumn of 2011 has so far continued into 2012.Its weekly private sales rate per site is around 22% ahead of the prior year over the first eight weeks of 2012. "Prices remain stable and we have seen some further improvement in gross margins for reservations taken in early 2012," it said in a statement.Strategic review and long term capital return planA strategic review undertaken by Persimmon's management team has identified the need to, "maintain its record of controlled, profitable growth whilst recognising the timing of the development cycle. The group will continue to focus on increasing margins, profitability and free cash-flow, while ensuring that the land replacement needs of the business remain a priority."Within the context of that review the company has committed itself to return surplus capital to shareholders, even based on the assumption that the availability of mortgage credit may remain constrained. A full year dividend of 8.5p has been offered, lower than expectations of a 9.5p payment.CJ