Despite issuing some reasonable half year numbers, housebuilder Persimmon says it is cautious about the outlook, and analysts are advising investors to steer clear of the sector for the moment.
The company said legal completions for the six months to the end of June had risen by 16%, the average selling price was up 8% to £168,500 with turnover up 26%. But it admitted it had seen the normal seasonal slow down in private sale reservations since early May - exaggerated by the election and the emergency budget. Since the budget sales have been "in line with expectations."
And until mortgage availabilty improved, it said it remained cautious about investment decisions. Alastair Stewart of Investec said these comments echoed what rivals were saying:
The group said it had experienced the "normal seasonal slowdown" in private reser vations, but we believe this year it may be more pronounced given the outlook for the economy, the public sector and bank lending.
The statement conceded: ""we remain cautious in our investment decisions until mortgage availability improves further".
This chimes with more forthright statements from our industry meetings which suggest major land buyers are pulling out of the market for fear of a "double dip".
We are not changing our numbers at this point following [statement which] implied a higher EBITA than we were provisionally expecting for the first half, but had a noticeably hesitant tone on outlook. We believe the housing market has lurched down in recent weeks according to our meetings with the industry. Best to avoid the stock and sector short-term.
Our investment advice on the stock and the sector is for longterm investors to buy on weakness (on a 3 - 5 year view), but that there could well be more weakness on a six month view.
KBC Peel Hunt issued a sell note, with analyst Robin Hardy saying:
We have been surprised by how well the market has stood up through the first half of 2010 and these provisional figures square with that. Sales, margins and debt are better than we expected.
The first half of 2010 is likely to prove to have been like the last days of Rome for the new homes market. Improving mortgage lending, a benign pricing environment and rising public confidence in housing. We cannot see this continuing through the second half, and see another step down after the comprehensive spending review in late October, when the extent of public sector cuts is unveiled.
Despite recent, steep falls the stock is not cheap. The market view of this
sector is changing, with questions now rightly being asked about what metrics to use or how to rate these metrics. The standard in the last year or more has been a premium to book value based on simple historical reference. This has ignored the poor returns available from current assets and the high hope value attached to future investment. Fair value is clearly a discount to net asset value on this basis and at 24% below last stated book value. Persimmon is trading only at around fair value, but is not cheap. However, the trading update will impress and we would expect the shares to rally.
As indeed they have as investors accentuate the positive, and are currently up 21.4p at 369.9p.
