Persimmon sees selling prices stabilise

25th Aug 2009 07:13

Housebuilder Persimmon reported a drop in first half profits but said selling prices have stabilised in most parts of mainland UK.Pre-tax profit fell to £9.8m during the six months ended 30 June from £36.9m last time. The figure was positive thanks to a £27.9m positive revision of the group's property and land portfolio. Broker Panmure Gordon predicted a pre-tax loss of £6.1m.Persimmon legally completed 4,006 units (H1 2008: 5,501) at an average selling price of £155,524 (H1 2008: £181,485). Total sales revenue for the period was £611.8m compared with £998.4m last year.Net reservations continue to run ahead of the comparative weeks of 2008, with current forward sales, including legal completions since 1 July, of around £910m (2008: £836m).'We expect sales rates to remain resilient due to the successful destocking that has occurred in the industry combined with the continuing good levels of underlying demand for new homes in the UK,' said chairman John White.'Recently, selling prices have stabilised in most parts of mainland UK. Future volume increases and price movements will be dependent upon mortgage availability, job prospects and the health of the general economy.'Following today's results, Panmure Gordon reiterates its 'hold' recommendation but ups its price target to 500p from 428p on the basis that write-downs are likely to be lower than its previous expectations. 'It is interesting that Persimmon has stated that it will only selectively purchase new land sites, as it has sufficient land holdings in place to develop in the coming years,' the broker notes, adding that this 'should allay market fears that a dilutive rights issue is around the corner.' KBC Peel Hunt disagrees, however. 'Debt has reduced, but the working capital cycle has turned and the movement going forwards is likely to be outflows after 18 months of high inflows,' suggests KBC's Robin Hardy, a long time housebuilding sector bear. 'Covenants have been set based on required levels of cash inflow. This means that by re-investing in land and stock, Persimmon (along with most others in the sector) is constrained by its covenants. This raises the possibility of an expensive refinance or perhaps a raising of equity to support any re-investment,' Hardy warns. KBC rates the shares a 'sell' and has a target price of 301p.Sector peer Bovis announced a sharp fall in pre-tax profits on Monday though encouragingly private legal completions grew by 18%.