57% profit rise for Persimmon amid house building recovery
Building profits soar as Persimmon unveils plans to take on new staff and develop 100 sites amid increasing demand
One of the country's largest homebuilders, Persimmon, has reported a 57% increase in profits, as the recovery in the housing market takes root across the UK.
Persimmon, which builds houses across the country outside the M25, reported improved confidence across the regions, against the backdrop of "ongoing improvement in the UK's economic performance".
Stronger economic conditions helped push up the average selling price to £186,970, a 4.3% increase on last year. The builder, whose brands include Charles Church and Westbury Partnerships, sold 6,408 completed homes in the first half of 2014, a 28% increase on the same period last year. Pre-tax profits rose to £213m, up from £135m the previous year.
Persimmon's robust performance comes after its rival Bovis reported a first-half profits rise of 166%, boosted by a 20% increase in average sales prices to £239,500 during the same period.
Although builders' profits are soaring, estate agents have warned that the housing market has started to cool, following comments in June from the Bank of England governor, Mark Carney, that interest rates could rise. Lenders are also tightening conditions for mortgage loans in an attempt to curb inflationary pressures in the housing market.
Persimmon, which does not build in London, the focus of anxiety about a housing bubble, has not seen demand slacken, with reservations to buy houses up 9% on last year since 1 July. "As we have entered the traditionally slower summer trading weeks, we have been encouraged by our private sale reservation rate," said the Persimmon chief executive, Jeff Fairburn. Forward sales – measured to the start of this week – are up 22% on last year.
As demand remains strong, the York-based builder also announced plans to step-up building work and take on new staff, as it outlined plans to develop 100 new sites during the second half of the year.
The strong performance is a bonus for shareholders of the FTSE 100 company. Persimmon reported a 61% increase in earnings per share to 54.8p, while its share price rose 1.1% in early trading to £13.52.
Richard Hunter at Hargreaves Lansdown Stockbrokers said Persimmon was not only taking advantage of the benign sector backdrop, where demand continues to exceed supply, but was also investing to capitalise on further growth.
Inevitably, some concerns will continue to be expressed around the UK housing market in general and whether the current price rises are sustainable, whilst the recent hike in Persimmon's share price may raise some valuation concerns." He added: "With the sector currently showing little signs of fatigue, prospects for Persimmon remain bright.