Persimmon Half Year Results.

[idpickering]

Strong platform for high quality growth

Experienced management team delivering high quality homes across the Group's 31 housebuilding businesses.

A diverse UK-wide network, operating on c. 300 active outlets on average during 2021, with a strong pipeline expected to deliver approximately 85 new outlets by the end of this year, with a similar number of new outlets targeted to open in the first half of 2022.

High quality land holdings, with 85,771 plots owned and under control at 30 June 2021 (December 2020: 84,174), with industry leading embedded returns.

The Group brought 10,272 plots into the business in the period whilst maintaining the Group's high quality return requirements, across 48 locations at a replacement rate of c. 140%. Exciting pipeline of deals progressing.

The Persimmon Way is fully operational across the business focused on delivering consistent high standards of build quality.

Pre-Covid build rates have been maintained for the last twelve months.

And later;

Dividends

After careful assessment of the capital needs of the business, the Board accelerated the payment of the regular annual distribution of 125 pence per share, as an interim dividend for the financial year ended 31 December 2020, to 26 March 2021 from early July 2021. In addition, on 13 August 2021, the Board accelerated the return of surplus capital in relation to the financial year ended 31 December 2020 by way of a payment of 110 pence per share, rather than making two payments of 55 pence per share, one to be paid in August 2021 and the second in December 2021 as had previously been indicated. This has returned the Group to distributing two capital return payments every 12 months, a year earlier than originally envisaged. There will be no further dividend payments in relation to the financial year ended 31 December 2020

https://www.investegate.co.uk/persimmon ... 00059582I/

[daveh]

and even later:

Capital Return Programme





As indicated at the release of Persimmon's final results on 3 March 2021, the Board intends to continue this pre-Covid profile of capital return payments in 2022, being distributions in relation to the financial year ending 31 December 2021. The payment of the regular annual distribution of capital of 125p per share will be paid in early July 2022 and any surplus capital in relation to the financial year ended 31 December 2021 will be paid in late March/early April 2022. The value of the surplus capital return, as always, will be subject to continual assessment by the Board in line with the Group's strategy.

so a minimum of 125p next year and possibly more.

[idpickering]

I’m seriously considering adding Persimmon to my HYP? Hmm.....?

Ian.

[monabri]

Looking further forward, I can see the gravy train slowing.

Rising material costs ( I've seen that first hand myself with shortages of wood leading to significant cost increases).

Labour shortages meaning that builders have to pay increased rates ( listening to reports on BBC Radio about having to pay drivers and chippies extra per hour ...all costs that will feed through to the bottom line).

Housing market overheated price wise.

So, in the short term it's rosy but further out I'm not sure. How much more can house prices increase and will builders be forced to cut prices if interest rates increase?

[scrumpyjack]

Looking further forward, I can see the gravy train slowing.

Rising material costs ( I've seen that first hand myself with shortages of wood leading to significant cost increases).

Labour shortages meaning that builders have to pay increased rates ( listening to reports on BBC Radio about having to pay drivers and chippies extra per hour ...all costs that will feed through to the bottom line).

Housing market overheated price wise.

So, in the short term it's rosy but further out I'm not sure. How much more can house prices increase and will builders be forced to cut prices if interest rates increase?

This is the line the analysts always peddle about builders, the other one being their premium to asset value, but in the longer term the cost of building land (their 'raw material') adjusts so their margins then recover, though it is true that PSNs margins are a lot higher than most. The barriers to entry for builders now are much higher than they used to be when I was young, so long term I think they are a fairly robust business. If they could do their accounting on a replacement cost basis (as oil companies do), they could produce very nice steady figures over the years!

I do like the fact they produce substantial real profits, not figures conjured up by creative accounting as so many companies do.

[ReformedCharacter]

I’m seriously considering adding Persimmon to my HYP? Hmm.....?

Ian.

I can't remember if you already hold a builder in your HYP and Persimmon is probably one of the better ones. Nonetheless I'd be wary of hindsight bias, I can't remember how long the capital returns are planned to continue and that must be propping up the price. I bought in 2012 and unfortunately top-sliced in 2017 which turned out to be an expensive mistake. Nonetheless it has been my most successful investment with an IRR of 34.9%.

RC

[daveh]

I can't remember if you already hold a builder in your HYP and Persimmon is probably one of the better ones. Nonetheless I'd be wary of hindsight bias, I can't remember how long the capital returns are planned to continue and that must be propping up the price. I bought in 2012 and unfortunately top-sliced in 2017 which turned out to be an expensive mistake. Nonetheless it has been my most successful investment with an IRR of 34.9%.

RC

My recollection is that their multi year capital return plan ended this year. They didn't keep to it anyway. They returned way more than they initially promised adding extra payments in a number of years that were additional to originally outlined.

I purchased in 2008 and they almost immediately cut the dividend (due to the GFC). I almost bought more when their price was beaten down but before they restored the dividend as in one of their reports the accounts basically showed they weren't going bust and it looked like they would come good again, but didn't because I was a HYP investor and there was no dividend (I didn't have the courage of my convictions). Can't really complain. I've already received more than twice what I paid for my holding in dividends alone. I won't be toping up as they are at ~2x median value, approaching top slicing territory.

[Breelander]

I’m seriously considering adding Persimmon to my HYP? Hmm.....?

....I can't remember how long the capital returns are planned to continue and that must be propping up the price. I bought in 2012 and unfortunately top-sliced in 2017 which turned out to be an expensive mistake. Nonetheless it has been my most successful investment with an IRR of 34.9%.

I bought in 2007. The Capital Return Plan was announced in 2011 with a payment schedule set out that orriginally was to end in 2021. Since then PSN have met or exceeded the original planned payments, with Covid only delaying some of the payments.

Full list of payments here, the last one being for July 2022 (later than planned due to delay introduced by Covid postponements).

https://www.persimmonhomes.com/corporat ... -programme

And to think I nearly sold up when the Capital Repayment plan was first announced - now that really would have "...turned out to be an expensive mistake".

It seems more likely that a new capital repayment plan will be announced to continue on from the current one, rather than a return to conventional dividend announcements.

[idpickering]

I’m seriously considering adding Persimmon to my HYP? Hmm.....?

Ian.

I can't remember if you already hold a builder in your HYP and Persimmon is probably one of the better ones. Nonetheless I'd be wary of hindsight bias, I can't remember how long the capital returns are planned to continue and that must be propping up the price. I bought in 2012 and unfortunately top-sliced in 2017 which turned out to be an expensive mistake. Nonetheless it has been my most successful investment with an IRR of 34.9%.

RC

Thanks for your input. I don’t currently hold a house builder, but have in the past, both Taylor Wimpey and Persimmon. I sold both years ago, for reasons I don’t recall.
Thanks to monabri for his wise words above. I get that house building shares are cyclical, and we might be at the top of the current cycle? Something to mull over methinks. I’m buying more HICL on Friday, and might follow that up with another top up of them in September. We’ll see?

Ian.

[Wizard]

Looking further forward, I can see the gravy train slowing.

Rising material costs ( I've seen that first hand myself with shortages of wood leading to significant cost increases).

Labour shortages meaning that builders have to pay increased rates ( listening to reports on BBC Radio about having to pay drivers and chippies extra per hour ...all costs that will feed through to the bottom line).

Housing market overheated price wise.

So, in the short term it's rosy but further out I'm not sure. How much more can house prices increase and will builders be forced to cut prices if interest rates increase?

This is the line the analysts always peddle about builders, the other one being their premium to asset value, but in the longer term the cost of building land (their 'raw material') adjusts so their margins then recover, though it is true that PSNs margins are a lot higher than most. The barriers to entry for builders now are much higher than they used to be when I was young, so long term I think they are a fairly robust business. If they could do their accounting on a replacement cost basis (as oil companies do), they could produce very nice steady figures over the years!

I do like the fact they produce substantial real profits, not figures conjured up by creative accounting as so many companies do.

My bold.

Can you expand on that nugget?

[scrumpyjack]

There used to be lots of small builders. Now the barriers of the planning system, extensive complex regulations, employment issues etc etc mean that building is far more concentrated in the hands of a few large companies. In spite of the industry being hugely profitable for many years, there has not been an upsurge of newcomers entering the market. From that I infer that there are now considerable barriers to entry to housebuilding.

https://www.showhouse.co.uk/features/th ... ebuilders/

[daveh]

There used to be lots of small builders. Now the barriers of the planning system, extensive complex regulations, employment issues etc etc mean that building is far more concentrated in the hands of a few large companies. In spite of the industry being hugely profitable for many years, there has not been an upsurge of newcomers entering the market. From that I infer that there are now considerable barriers to entry to housebuilding.

https://www.showhouse.co.uk/features/th ... ebuilders/

I'm not so sure, I know of a local bespoke building company locally that set up fairly recently (CairnRowan homes https://cairnrowancustomhomes.com/ ) and seems to be navigating their way around those problems successfully- not a large company though.

[scrumpyjack]

There used to be lots of small builders. Now the barriers of the planning system, extensive complex regulations, employment issues etc etc mean that building is far more concentrated in the hands of a few large companies. In spite of the industry being hugely profitable for many years, there has not been an upsurge of newcomers entering the market. From that I infer that there are now considerable barriers to entry to housebuilding.

https://www.showhouse.co.uk/features/th ... ebuilders/

I'm not so sure, I know of a local bespoke building company locally that set up fairly recently (CairnRowan homes https://cairnrowancustomhomes.com/ ) and seems to be navigating their way around those problems successfully- not a large company though.

Well good luck to them. Perhaps small builders can fight their way back. Although I hold both PSN and BDEV, and have done incredibly well out of them, I can't help feeling the standard of housebuilding these days is low. My daughter looked at a Persimmon home a few years ago near Oxford. The so-called Executive home had built in cupboards not deep enough to take a coat hanger!

[Breelander]

...I don’t currently hold a house builder, but have in the past, both Taylor Wimpey and Persimmon. I sold both years ago, for reasons I don’t recall....

Would that have been your 'best-est Dad' moment?

House builders are a mixed bag. While Persimmon has done well for me, the Berkeley Group which announced its own very similar capital return plan at the same time, later on morphed actual payments to shareholders into a share buyback scheme instead - claiming that in doing so they were still returning 'capital' to shareholders. Fortunately I don't hold Berkeley.

[daveh]

Well good luck to them. Perhaps small builders can fight their way back. Although I hold both PSN and BDEV, and have done incredibly well out of them, I can't help feeling the standard of housebuilding these days is low. My daughter looked at a Persimmon home a few years ago near Oxford. The so-called Executive home had built in cupboards not deep enough to take a coat hanger!

I'm not sure the standard of the big house builders is that high - you hear some horror stories. I quite like the houses CairnRowan build, but they are one offs. Usually steading conversions or single new builds replacing an old farm building. Generally built to passive house standards with renewable generation and sometimes battery storage. Not cheap either.

I hold Persimmon (which has done very well for me - but I'm not sure I'd buy their product) and Vistry (from the takeover of the house building bit of Galliford Try (both of which are still under water, but that's more down to the price I paid for GFRD).

[idpickering]

...I don’t currently hold a house builder, but have in the past, both Taylor Wimpey and Persimmon. I sold both years ago, for reasons I don’t recall....

Would that have been your 'best-est Dad' moment?

House builders are a mixed bag. While Persimmon has done well for me, the Berkeley Group which announced its own very similar capital return plan at the same time, later on morphed actual payments to shareholders into a share buyback scheme instead - claiming that in doing so they were still returning 'capital' to shareholders. Fortunately I don't hold Berkeley.

I believe that may be the case. Over the years, my 3 'kids', now all in their 30's, with families of their own, have caused me to have a number of "Bestest Dad moments.

We digress, I'm still toying with buying into PSN at some point, maybe?

Ian.

[kempiejon]

We digress, I'm still toying with buying into PSN at some point, maybe?

If you want someone to talk you down Ian have a quick squizz at https://www.dividenddata.co.uk/dividend ... y?epic=PSN
doesn't look like the most reliable/sustainable of dividends.
I hold and have done alright out of them thank you but even forgiving the covid effect historic income looks patchy, as can be the way with such creatures mind.

[idpickering]

We digress, I'm still toying with buying into PSN at some point, maybe?

If you want someone to talk you down Ian have a quick squizz at https://www.dividenddata.co.uk/dividend ... y?epic=PSN
doesn't look like the most reliable/sustainable of dividends.
I hold and have done alright out of them thank you but even forgiving the covid effect historic income looks patchy, as can be the way with such creatures mind.

Thanks for that. Very patchy indeed. Not one of the plodding steady type of HYP shares, with a rising dividend then? Mind you, we all know of some shares who’ve held their dividend static for years don’t we?....

Ian.

[Breelander]

We digress, I'm still toying with buying into PSN at some point, maybe?

If you want someone to talk you down Ian have a quick squizz at https://www.dividenddata.co.uk/dividend ... y?epic=PSN
doesn't look like the most reliable/sustainable of dividends.
I hold and have done alright out of them thank you but even forgiving the covid effect historic income looks patchy, as can be the way with such creatures mind.

Thanks for that. Very patchy indeed. Not one of the plodding steady type of HYP shares, with a rising dividend then? Mind you, we all know of some shares who’ve held their dividend static for years don’t we?....

What you have to bear in mind is that the dividenddata site only records actual payments of dividends. For 2013, 2014 and 2015 Persimmon paid shareholders capital returns totalling 240p by means of a B/C share scheme, not as actual dividends.

See: https://www.persimmonhomes.com/corporat ... -programme

[kempiejon]

What you have to bear in mind is that the dividenddata site only records actual payments of dividends. For 2013, 2014 and 2015 Persimmon paid shareholders capital returns totalling 240p by means of a B/C share scheme, not as actual dividends.

See: https://www.persimmonhomes.com/corporat ... -programme

Good call, Bree, I've checked my records and see I first added in 2017 and I'd have probably wanted 4 years and forecast rising dividend history to add, from the graph they wouldn't have qualified.