Builder's house sales spur sector

A cocktail of unemployment, spending cuts and a General Election looks likely to restrain house purchases this year, and the York-based housebuilder said it is keeping a wary eye on consumer confidence.

Persimmon, the UK's largest housebuilder by market value, beat market expectations on debt and said it has carved nearly 1bn from its peak in 2008.

The group, which reports results for 2009 in March, signalled more good news may be on the horizon with further writebacks on the value of its land likely.

Persimmon sold 8,976 new homes over the year, generating turnover of about 1.4bn. That was down about 12 per cent on 10,202 sales in 2008.

The group benefited from a stronger housing market in the second half of 2009, with 4,970 sales compared to the 4,006 completions achieved in the first half, a rate it hopes to continue this year.

"Sat here today we would hope that we can maintain the rate of sales and output at the second half," said finance director Mike Killoran. "The thick end of 10,000 for 2010 would be a reasonable aspiration."

Should current conditions continue, the builder hopes to open 90 sites by July, each with an average of 100 to 150 homes. It is operating from about 370 sites across the country, a rate it plans to maintain.

Forward sales into 2010 are about 40 per cent ahead of last year at about 640m.

"We are running the business on the basis that we can respond to whatever the market throws at us," said Mr Killoran. "We are in a much stronger position than we were 12 months ago."

Persimmon said net debt stood at about 270m at the end of 2009, more than half the 599m figure a year earlier and significantly down on the 1.2bn level of April 2008.

"That trend on debt will continue," said Mr Killoran, adding debt had been cut by strict management of working capital and cash.

In August last year the group announced land writebacks which released 27.9m. "There's a strong possibility that a further writeback will come through at the full year for the second half," said Mr Killoran.

Despite a continued uptick in the UK housing market, Persimmon said it will maintain its cautious approach while economic uncertainty prevails. Mortgage lender Halifax yesterday said house prices rose for the sixth consecutive month in December, with prices in the fourth quarter 3.5 per cent higher than the third quarter.

The group said it continues to invest in both new and existing developments and new land acquisitions, focusing on "good opportunities at attractive margins".

It acquired and agreed terms to acquire about 3,000 plots during late 2009, with more than 80 per cent of these in the south.

Mr Killoran said this southerly focus was down to prices holding up better than the north. "We would say the north west and Yorkshire have been the toughest markets for us," he said.

A favourite of the analysts

Persimmon remains a darling among analysts, who are impressed by its debt reduction.

It is the only remaining major UK housebuilder not to tap shareholders for cash with an equity issue during the downturn.

Analysts at MF Global said Persimmon is "firmly In the winners' camp". "The group really has shown its worth in this downturn reducing debt by almost 1bn to 270m," they added.

Persimmon's shares rose 6.6 per cent on the update, to close up 31p at 500p, also lifting other UK housebuilders

Analysts at Collins Stewart said: "Persimmon deserves credit for its cash generation – its debt in April 2008 stood at 1.2bn and the group is the only large housebuilder not to issue equity."

Mark Hake, at Bank of America/Merrill Lynch, said: "On our estimates the group could be virtually debt free by end 2010.

"Also, the house selling price environment suggests that another provision writeback is likely for the year end."