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FTSE 100: Persimmon boosted by rising house prices as inflation eats into earnings

·Business Reporter, Yahoo Finance UK
·3-min read
Builders construct modular Space4 homes on a Persimmon development in Coventry, February 22, 2017. Picture taken February 22, 2017. To match Insight BRITAIN-EU/CONSTRUCTION REUTERS/Darren Staples
Profits at Persimmon dropped by 8% to £440m during the first half as the rate of private sales declined 11%. Photo: Darren Staples/Reuters

Housebuilder Persimmon (PSN.L) revealed that a rise in UK house prices helped to offset soaring inflation, while its profit fell in the first half of the year.

Average selling prices for new homes came in at almost £246,000 ($298,032) in the six months to 30 June, a rise of £9,400 compared to the year before.

However, profits dropped by 8% to £440m during the period as the rate of private sales declined 11% in the first seven weeks of the second half. This came as the easing of pandemic restrictions helped sales in 2021.

The group generated revenue of £1.69bn in the six months, compared to £1.84bn a year ago.

Adam Vettese, analyst at social investing network eToro, said: “The UK’s rampant housing market has been in fifth gear ever since it reopened in the height of the pandemic.

Read more: Inflation: Bank of England likely to raise interest rates by 0.5% again

“The government’s stamp duty holiday, which only ended last summer, helped to stoke activity during what was an exceptional period of demand for the market.

“Therefore, investors should not concern themselves that many of Persimmon’s key financials, such as profit and revenue, were lower in the first half of the year than they were 12 months ago. Those were artificial market conditions that are unlikely to return.”

First-half completions fell from 7,406 to 6,652 due to delays in securing planning permission, but the company still expects to complete between 14,500 and 15,000 homes for 2022.

Persimmon said “sales price inflation” was “currently mitigating the cost inflation the industry is experiencing”, which it said was “around 8% to 10%”.

New housing gross margins edged up to 31%, from 30.9% previously, amid rising prices and labour costs in the UK economy.

Read more: UK inflation hits 10.1% as food prices hit 40-year high

“We are mindful of the scope for further interest rate raises as well as the broader economic challenges recently set out by the governor of the Bank of England (BoE), alongside the wider industry challenges including the withdrawal of Help to Buy,” said Dean Finch, chief executive.

The York-based company also reiterated its profit guidance for the year, however, shares were down 2% on Wednesday on the back of the news.

Charlie Huggins, head of equities at Wealth Club, said: “House prices have proved remarkably robust since the pandemic began, buoyed by pent-up savings and cheap mortgages. Persimmon has gushed cash in this environment and is returning record amounts of it to shareholders,” said

“Persimmon is performing strongly in areas it directly controls. It has one of the best land banks in the industry and has taken steps to improve the quality of its homes and customer service. But, make no mistake — the biggest reason for Persimmon’s success is high house prices, and the general strength of the housing market.”

“That is something over which it has no control, and it could be about to change.”

Watch: Will UK house prices ever fall?