An important date is looming for Persimmon investors. They are soon to receive their first payment in the company’s £1.9bn cash return. New investors need to get on the shareholder register before April 19 to receive the 75p special dividend, paid in June. There is also the prospect of a 95p dividend to be paid by June 2015.
Yesterday’s full-year results came in a touch ahead of market expectations. A combination of a 6pc increase in the average selling price of Persimmon’s properties to £175,640 and a 6pc increase in completions to 9,903 helped boost revenues by 12pc to £1.7bn.
Pre-tax profits jumped 51pc to £221.8m because the company is selling homes on cheaper land bought after the credit crunch. Indeed, the operating margin increased to 13pc in 2012 from 10pc in 2011. The second half saw further increases, with margins hitting 13.7pc. The group’s cash position looks very strong, which is not surprising since management has the confidence to implement such a special dividend strategy. At the end of the year Persimmon had net cash of £201m. This is despite buying a further 14,800 plots over the year, bringing its landbank to 68,200. This represents almost seven years of supply at current rates.
“Mortgage availability remains the key constraint to the housing market,” said Nicholas Wrigley, Persimmon chairman. He is correct because the margin story only has a limited shelf life to work its way through the system. There are signs of a slight improvement, but it is not of the scale that will get the market moving again. According to the British Bankers’ Association, mortgage approvals fell in January, but some of this was down to the cold weather. However, approvals, at £7.7bn, were above the recent monthly average of £6.6bn.
The shares are trading on a 2013 earnings multiple of 14.2 falling to 12.6 next year. This is obviously not “cheap” and there are broader market concerns to contend with after such a bull run, however, the cash return policy underscores an investment. Mortgage lending will eventually improve and the UK remains structurally short of housing. Despite the shares being propelled to a five-year high after yesterday’s results, Persimmon remains a buy for income seekers.