On Tuesday (12 March), Persimmon (LSE: PSN) told us it expects another tough year in 2024, and that didn’t help the share price.
“While we are prepared for 2024 to be another challenging year, we are confident of our ability to manage this,” said the update. The shares dipped 3% in early trading.
Despite a rise in late 2023, we’re still looking at a 40% fall over five years. Is Persimmon a stock to consider right now? I think so.
FY 2023 results
The housebuilder revealed a 33% fall in house completions in 2023. The average selling price did edge up a bit though, by 3%.
The key problem is that margins are falling. The underlying new housing gross margin dropped from 30.9% in 2022, to just 20.5%.
And though total revenue fell 27%, underlying operating profit crashed by 65%.
Still, a one-off bad year like 2023 doesn’t come along very often. And the fact that we still saw a profit in a year like that says good things to me.
Oh, hang on, there’s another tough year coming. I’d still never judge the company based on a two-off like this, mind.
How much cash?
With £420m cash on the balance sheet at the end of the year, I don’t think we need to worry about Perismmon going bust. It’s a bit less than half the 2022 figure of £862m, though.
The board kept the dividend at 60p per share. That’s a 4.5% yield on the current share price. It’s behind the big yields we’ve seen in the past. But I think it’s still pretty good for the worst year the business has seen for some time.
Uncertainty over whether it can be maintained in 2024 is a risk, and I could see the share price suffering if it’s cut.
The board did say its intention is “to at least maintain the 2023 dividend per share in 2024, with a view to growing this over time as market conditions permit.” But I think it’s way too early to just assume that will happen.
Verdict
So what’s my verdict on Persimmon now? Well, this set of figures isn’t too important. We expected them to be down, and they were.
My main worry now is that 2024 could be a fair bit worse than we’d hoped. I thought interest rates would come down in the first half of this year, and then fall fairly quickly. There’s a very good chance that won’t happen.
I don’t expect we’ll get much from the Persimmon share price this year, and I can see sustained weakness.
Long term
Yet the stock remains a long-term hold for me. Assuming the firm can get through this next tough year in good shape, that is. The liquidity position gives me fair hope it can.
As CEO Dean Finch said: “Although the near-term outlook remains uncertain, the significant pent-up demand for homes remains unchanged.”
Well, yes. There aren’t enough homes in the UK, and there are too many people who want them. I’m happy to put some of my money into building them and I plan to buy more.
