Persimmon Plc (PSN), A Home Building Company Surged 22 Per Cent On A Year-to-Date Basis, What Are The Main Drivers?

  • Feb 26, 2019 GMT
  • Team Kalkine
Persimmon Plc (PSN), A Home Building Company Surged 22 Per Cent On A Year-to-Date Basis, What Are The Main Drivers?

Persimmon Plc and its subsidiaries are engaged in the construction of home buildings across Great Britain. The company got incorporated in the year 1972 and has employed approximately 4,943 employees as on 31st December 2018. Their areas of operations include designing, development and building of residential housing units.

Key Developments 

  • On February 26, 2019, Persimmon Plc announced the appointment of David Jenkinson as group's Chief Executive Officer with immediate effect.
  • On February 26, 2019, Company posted its full-year final results for the period ended on 31st December 2018 (FY18), revenue surged 4% to £74 billion compared to £3.60 billion in FY17.
  • On November 7, 2018, Jeff Fairburn stepped down from the chair of Chief Executive Officer, at the request of the company. At the same time, Persimmon Plc proposed the name of David Jenkinson as an interim Chief Executive, and his role got effective from 31st December 2018.

Full Year Financial Summary for FY18 (period ended as on 31st Dec 18)

Source: Company filings, LSE)

Results Commentary

  • Group’s total revenue increased by 4% during FY18 to £74 billion from £3.6 billion in FY17, results for FY18 shows the focus of offering attractively priced new houses particularly to the new buyers and first-time mover market where housing need was most significant.
  • During the year, the group’s operating profit was up by 13% to £083 billion compared to 0.955 billion in FY17.
  • Pre-tax profit rose to 13% during FY18 to £091 billion vs £0.966 billion in FY17.
  • Basic earnings per share stood at 283.3 pence compared to 255.0 pence in FY17, an increase of 11% in FY18.
  • During the financial year 2018, company acquired 17,092 plots of lands out of which 3,772 plots successfully converted from the Persimmon's strategic land portfolio.
  • During the period ended as on 31st December 2018, the company announced an interim and final dividend of 125 pence and 110 pence per share.

At financial ratios standpoint, Persimmon Plc has delivered new housing operating margin of 30.8% during the period ended on 31st December 2018, up 260 basis points, operating margin during the corresponding period of the previous year stood at 28.2%, although the company reported new housing operating margin of 31.8% during the second half of the financial year 2018.

Persimmon Plc posted a stellar 52.8% return on the average capital employed in FY18, return on average capital employed increased by 130 basis points compared to the FY17 ROAC of 51.5%.

Stock Performance

At the closing (as on 25th February 19), Persimmon stock closed at GBp 2,352, down by 4.70 per cent from its previous close, Persimmon Plc’s outstanding market capitalisation stood at £7.44 billion and a dividend yield of 9.99 per cent. During the last one-year stock have reached a 52w high of GBp 2,913 and a 52w low of GBp 1,824.70. At the close, shares of Persimmon was trading 19.26 per cent below its 52w high and 28.9 per cent above its 52w low, it indicates there are possibilities with the stock to move up further in short to mid-term time spam.  Stock's Beta of 0.92 makes its shares comparatively less volatile against the benchmark index. In last one-year company's shares are delivering a return of negative 4.85% and up by 21.87% on a year-to-date basis.

At valuation standpoint, Persimmon’s shares were trading at an LTM PE of 8.5x compared to the industry median of 8.6x, and this indicates company's valuation is in line with its peers operating within the same line of business.

Conclusion

Appointment of David Jenkinson, as new CEO of the group, will have a favourable impact on the group's future performance. Higher Operating margin and Return on Average Capital (ROAC), shows the operational efficiency of the company.

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