Persimmon PLC Half Year Results 2016

  --   Profit before tax increased 29% to GBP352.3m 
        (2015: GBP272.8m) 
  --   Revenue up 12% to GBP1.49bn (2015: GBP1.33bn) 
  --   Legal completions increased 6% to 7,238 new homes 
        sold (2015: 6,855) - an additional 383 new homes 
  --   Further expansion of underlying operating margin* 
        to 23.8% (2015: 20.5%), an increase of 330bps 
  --   Return on average capital employed** increased 
        by 29% to 35.6% (2015: 27.5%) 
  --   Net free cash generation*** of GBP229.9m in the 
        period (2015: GBP190.7m) 
  --   Basic earnings per share increased 19% to 92.0p 
        (2015: 77.3p)

In Brief: A strong set of results from the company, who appear to have allayed initial fears surrounding the referendum.  Excellent free cash generation and a positive outlook going forward.

Persimmon PLC today announced their half-year results to June 30th 2016 with strong figures across the board.  Profit before tax increased 29%, revenue increased 12%, operating margins up to 23.8% and return on capital employed up to 35.6%, resulting in free cash flow of £229.9m.

Cash Flow

The company have continued their tradition of strong free cash flow and remain well on course to continue their ten-year Capital Return Plan initiated in 2012.  Free cash for for the period (£229.9m) represents a 20.5% year-on-year increase which is substantial given concerns regarding the outcome of the EU Referendum.  At the current market price of £18.78 per share the CRP would provide any potential investor a yield of 5.9% per year through to 2022.


Although Persimmon suffered as a result of the outcome of the referendum, the steady rise in the share price means the company now trades at a 9.5% discount to it’s valuation before June 23rd.  In terms of impact on the business I am pleased to see customer interest actually increased following the result, with private sales 17% ahead of last year.

My View

Initial overreaction to the EU referendum appears to be unfounded, with these half-year reports all but shrugging off any potential fears.  As I believed in the days after the vote , customer interest in housing remains strong, due to a critical shortage of affordable housing in the UK.  It remains unclear as to how a May-led Conservative government will approach this issue, however the capable management at Persimmon are getting on with business and providing excellent value to shareholders whilst helping to meet customer need.

The average selling price of a home built by Persimmon this year was £205,762 (up 6% YoY),  reflecting a price point in the market within reach of first-time buyers.  Pricing at this point should offer some cushion of safety for the company as the full extent of the impact of the referendum becomes clear.


Disclosure: Persimmon PLC is a constituent of the portfolio.

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