Persimmon (LSE: PSN) is a house-builder I’ve liked for ages, and over the past five years its shares have almost doubled. Several years of big double-digit rises in earnings per share certainly helped, though growth that strong inevitably had to slow.
While that’s come to pass, sentiment towards the housing sector has also been shaken by Brexit fears, and the Persimmon share price has declined by 23% since June’s peak. Comments from Bank of England governor Mark Carney haven’t helped, after he reportedly suggested that house prices could fall by around a third should we face a disorderly exit from the European Union.
That was a worst-case scenario, but it’s the kind of thing that can seriously raise uncertainty — and uncertainty causes share prices to wobble.
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Warning
A profit warning from Crest Nicholson this week further shook the sector, with the typical second-half pick-up in demand for homes in London and the South of the country appearing not to have materialised this year. But I agree with fellow Fool Peter Stephens’ suggestion that Crest Nicholson has a significant safety buffer, and I don’t see its dividend as coming under any real pressure.
I think the same is true at Persimmon, which is awash with surplus capital — so much that, with special dividends included, forecasts are suggesting total dividend yields for this year and next of better than 10%. With forward P/E multiples of around eight, I see a safety margin here too.
Still, while Brexit negotiations continue with their appearance of stumbling from one obstacle to another on a daily basis, I can see house-builder price weakness continuing — and it could carry on for some time. But to me that suggests possibly better buying opportunities.
Overlooked star?
If forecasts prove accurate, the dividend from Character Group (LSE: CCT) will have more than trebled in five years — from 7.25p in 2014 to 23p in 2019. That suggests yields of 4.4% this year and 4.8% next, and with the shares on P/E multiples expected to drop to 10 by 2019, I’m wondering why the market isn’t more interested.
I’m guessing it’s the 10% EPS drop predicted for this year that’s putting people off, after several years of solid growth, but I’m thinking a 19% rebound indicated for 2019 could quickly restore a bit of bullish sentiment.
At 500p, the share price is just about unchanged over the past three years, though with a few ups and downs along the way. That’s after 2015’s massive rise following on from the company’s recovery, and it highlights what I see as Character Group’s biggest weakness — its fortunes are governed by the toys and games market, which is greatly at the whim of each year’s fads and fashions.
Strong progress
A trading update last month was upbeat, with the company speaking of “strong demand for our core ranges and new introductions,” and expressing confidence in its prospects for the all-important Christmas season.
On Thursday the firm reported the acquisition of a 55% holding in Proxy, a Danish toy distributor, with the total payable being subject to future performance. The company says this should “potentially enable frictionless access to EU markets post-Brexit,” which is certainly an important consideration.
I see Character Group as tempting.
