Housebuilder Persimmon (LSE: PSN) delivered its full-year results today and the shares are almost 10% lower than they were yesterday.
However, with the share price near 1,319p, it’s now down around 43% from its level a year ago.
A negative outlook for 2023
It seems the outlook statement did the damage today. Chief executive Dean Finch said the market for new homes “remains uncertain”. But the company’s marketing campaign helped improve sales rates in the new year from the lows seen at the end of 2022. But they still declined year on year.
Finch said sales prices have been reslient. And the company “responded quickly” to the general housing market malaise last year to “stimulate sales, enhance cost controls and preserve cash”. And on top of that, the directors slowed new land investment in the fourth quarter of last year.
Nonetheless, Finch reckons sales rates over the last five months mean completions will be “down markedly” in 2023. And that will lead to lower profits. However, the directors haven’t provided any forward-looking guidance on likely trading figures.
The big danger for investors now is the inherent cyclical nature of the firm’s operations. For example, if the new homes market deteriorates further, it’s possible Persimmon shares may move lower. But, on the other hand, there’s undeniable recovery potential in the business.
But it’s always tricky trying to time an investment into the shares of a cyclical company like Persimmon. Nevertheless, there are plenty of positives in the figures. For example, new homes completions rose a little last year. As did new home selling prices. And underlying profit before tax increased about 4% year on year.
But there could be more pain ahead for shareholders. You see, the current forward sales figure showed a decline from the number a year ago. It stands near £1.52bn, compared to £2.21bn 12 months earlier. And City analysts expect earnings to fall by almost 50% this year.
Strong market fundamentals
The company said the forward sales position reflects the “significant” drop in private sales rates in the fourth quarter of 2022. But cancellation rates have since “reverted back to typical historic levels”.
Meanwhile, shareholder dividends are on the slide. There’ll be a final dividend for 2022 of 60p per share, intended as the “only dividend in respect of financial year 2022”. And for 2023, the directors expect to maintain the 2022 dividend with a view to growing it over time.
For context, shareholders received total dividends of 235p per share in 2022, representing the capital return from the 2021 trading year.
Despite this belt-tightening, Finch said that looking further ahead beyond 2023, the fundamentals underpinning demand for new homes are strong. And the firm is targeting “disciplined growth in the coming years”.
Overall, Persimmon is not an easy stock or business for investors to analyse right now. So doing plenty of research seems important before jumping in and buying any shares.
