Persimmon’s Revenues Decline Amidst Shoddy Construction Quality Concerns

  • Jan 16, 2020 GMT
  • Team Kalkine
Persimmon’s Revenues Decline Amidst Shoddy Construction Quality Concerns

Persimmon Plc (LON: PSN) – Persimmon Plc is a United Kingdom domiciled home building company. Founded in 1972, the company builds houses ranging from studio apartments to executive family homes. The company though headquartered in York operates through thirty-one regional operating businesses which have a countrywide presence. The country has eleven regional contact information centres where customers and prospective customers can raise queries for sales and after sales services which are addressed by the company. The company offers houses under nine different schemes to customers to make it convenient for them to buy and own houses. The schemes range from buying homes with the help of Scottish Government’s First Home Fund scheme to part exchange scheme where the buyer may exchange his old house with Persimmon for a new one.

The company claims that at any point in time it has a presence in 400 prime locations nationwide with active construction activity taking place. Every year the company builds and delivers nearly 16,000 houses as per customers’ needs and specific requests.

The shares of the company were first admitted into the London Stock Exchange on 29 April 1985. Here the shares of the company trade on the Premium Main Market segment of the exchange. The shares of the company are identified and traded under the ticker name PSN. The shares of the company are components of the FTSE 100 index.

News Update

The company on 15 January 2020 came out with an update on the resignation of non-executive director Claire Thomas from the board of the company. She had joined the company in that position in August of 2019 and would be remitting office on 1 February 2020. Previously she had been the Senior Vice President of Human Resources at GSK Venture Fund.

On the same day the company also came out with a trading update ahead of its full year result for the year ending on 31 December 2019 to be released on 27 February 2019.

  • The total revenues of the company for the year ended 31 December 2019 were £3.65 billion which is 2.4 per cent lower than the total revenues earned by the company in 2018 of £3.74 billion. The company in its statement has stated that this is on account of the company’s increased focus on improving on the quality of the houses being built.
  • New home revenues of the company for the year stood at £3.42 billion which is a fall of 3.5 per cent over the New home revenues of 2018 of £3.55 billion. The new home legal completion volumes for the year stood at 15,855 while in 2018 the numbers stood at 16,449. Average selling price per house for the year stood at £215,700 while in 2018 the average selling price per house was £215,563.
  • The company expects its profits prior to tax to be in line with the expectations of the market.
  • During the year, the company opened a new business at Harworth near Doncaster. This business will help the company gain access to the Yorkshire region. This business delivered 350 new homes in its first year of trading.
  • The forward sales made by the company on 31 December 2019 stood at £1,356 million which shall be recognised as revenues of financial year 2020. The forward revenue of the company on 31 December 2018 was £1,397 million.
  • The company was able to secure 9,900 plots of lands in 2019 in 60 locations. As on 31 December 2019 the company had an inventory of 365 developments which were in construction phase.
  • The cash balances of the company on 31 December 2019 stood at £844 million against a cash balance of £1,048 million on 31 December 2018. During the year the company repaid £748 million to shareholders while in 2018 it had returned £732 million to its shareholders.

Stock Performance at the London Stock Exchange

Source – Thomson Reuters

On 16 January 2020 at the time of writing of this report the company’s shares on the London Stock Exchange were trading at GBX 2,845.758.

The shares of the company during the past 52 weeks of trading at the London Stock Exchange have registered a 52-week high of GBX 2,950.00 while also registering a 52-week low of GBX 1,802.50. The company has a market capitalisation of £ 8.95 billion on the London Stock Exchange at the time of writing this report on 16 January 2020.

The stock’s traded volume at the above date and time stood at 515,119. Stock's average traded volume for 5 days was 1,313,790.40; 30 days- 1,371,552.10 and 90 days – 1,428,456.12. The beta of the stock of the company on the date was 1.06, which when compared to the benchmark index reflected a higher volatility. The stock’s trading volumes on the London Stock Exchange on an average for 5 days was up by -4.21 % as compared to the 30 days’ average traded volume.  In last one month, the shares have generated a return of -0.32 % and also a return of +4.16 % return on year to date basis.

Outlook

The company has been drawing a lot of flak lately for the poor quality of work in the houses built by it. Apart from the above, the company also had to take a hit on its reputation because of the criticism targeted towards it from various quarters on high executive pay-outs. On account of the above the company had to conduct an independent review of its operations last year, which in its report stated that the company has systematically failed nationwide to install fire-stopping cavity barriers on the houses built by it, putting homebuyers to intolerable fire risk. The report further stated that the above failures were the manifestation of poor culture in the company.

The company which built more than 16,000 houses last year has taken a hit on its sales figures this year because of this loss in goodwill. The Year 2020 which started with a strong start promises to bring in enormous possibilities for the housing and construction industry. The company’s efforts to rebuild its image through improvement in its quality of work in well timed.

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