Bloomberg News

Persimmon Profit at Top of Analysts’ Estimates, Farley Says

January 09, 2012

(Updates with closing share price in fifth paragraph.)

Jan. 9 (Bloomberg) -- Persimmon Plc’s 2011 profit was at the top end of analysts’ estimates as margins widened at the U.K.’s second-largest homebuilder by market value, Chief Executive Officer Mike Farley said in an interview today. The shares climbed the most in more than four months.

Analysts estimate that 2011 pretax profit, excluding one- time gains or losses and goodwill charges, was 130 million pounds ($201 million) to 148 million pounds, Farley said. That compares with 95.5 million a year earlier.

“Business is fairly stable,” Farley said by telephone. “Economics is a factor nevertheless, but what we’re dealing with is an underlying demand for people to buy. The people we’re dealing with are those ‘must-have’ movers.”

Homebuilders are focusing on single-family houses and buying discounted land to improve their margins after sales volumes declined on tighter lending, government cuts and a worsening economic outlook. Prices across the U.K. will fall 2 percent this year, according to real-estate broker Savills Plc.

Persimmon gained as much as 5.3 percent in London, the biggest increase since Aug. 25. The shares rose 25.5 pence to 506.5 pence at the 4:30 p.m. close of trading, giving the company a market value of 1.53 billion pounds.

Annual revenue was 1.53 billion pounds, the York, England- based company said today in a statement. That compares with 1.61 billion pounds, the average of 16 analyst estimates compiled by Bloomberg. The average home-sale price declined by 2 percent to 164,000 pounds.

Cheaper Loans

The company completed 9,360 homes in 2011, down from 9,384 a year earlier. About 600 of those sold in the second half were purchased through the FirstBuy Scheme, which allows buyers to get cheaper mortgages with an interest-free loan of 20 percent of the home’s value from the developer and the government.

From the second quarter, more borrowers seeking a new home will be able to get a mortgage with a down payment of as little as 5 percent of the purchase price under a government-led guarantee to protect lenders from some of the losses incurred in a default.

“It’s not the lack of affordability that’s the issue for first-time buyers, it’s the fact that they haven’t got that 20 percent deposit,” Farley said.

Britain’s home values will fall this year as buyers are deterred by government job cuts, rising unemployment and low wage growth, according to real estate brokers. Knight Frank LLP estimates that prices will drop 5 percent this year, beating Savills prediction of a 2 percent contraction.

Values would need to decline by at least double Knight Frank’s estimate before they affected the price of Persimmon’s homes, according to Farley.

“The business is well catered for on that front,” he said. “We could probably see prices decline up to around 10 percent before we’d have to consider any further positions on that front.”

Persimmon’s full-year pretax profit was 128 million pounds to 161 million pounds, according to 17 analysts surveyed by Bloomberg. The average estimate was 140 million pounds.

--Editors: Andrew Blackman, Jeff St.Onge.

To contact the reporters on this story: Chris Spillane in London at cspillane3@bloomberg.net.

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net.


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