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Persimmon Plc (PSN), the U.K.’s largest homebuilder by market value, gained the most since October 2008 in London trading after announcing a plan to return 1.9 billion pounds ($3 billion) to shareholders by 2021.
The shares rose as much as 20 percent, the most in the Bloomberg EMEA Home Builders Index, which increased 5.2 percent to the highest since September 2008. Taylor Wimpey Plc (TW/), the homebuilder that’s scheduled to report earnings tomorrow, had the second-biggest gain.
“This return of cash should make Persimmon’s balance more efficient and support a return to an acceptable level of return on capital employed,” Jon Bell, a Shore Capital Group Ltd. analyst with a “hold” recommendation on the stock, said in a note to investors today.
Persimmon and Berkeley Group Holdings Plc (BKG) are the only U.K. homebuilders to offer investors returns until 2021 as they seek to minimize the size of their companies. Britain’s developers abandoned high-volume homebuilding after the financial crisis and focused on houses rather than apartments in urban areas to increase margins.
Persimmon, based in York, England, was up 75.5 pence, or 12 percent, at 702.5 pence at 10:19 a.m., giving the homebuilder a market value of 2.12 billion pounds. The shares, which are on course to close at a record high, have climbed 64 percent in the past six months, while the Home Builders Index has gained 48 percent.
The homebuilder will pay investors a total of 6.20 pounds a share, starting with a 75 pence dividend in June 2013. The dividend will be paid in a two-year cycle until 2019, giving Persimmon flexibility to acquire land for development and generate further profits, Chief Executive Officer Mike Farley said on a conference call today.
“The business will be in a larger and stronger place” when the dividend plan winds up in 10 years,” Farley said on the call today. “We intend to do this by the use of a zero- geared balance sheet.”
Investors will receive their next dividend of 95 pence a share on 30 June, 2015. That will be followed by payments of 110 pence in June 2017 and 2019. The final payments of 115 pence will be made in each of the next two years, according to the statement.
Berkeley, the U.K.’s second largest homebuilder by value, said in June that it plans to return 1.7 billion pounds to investors over the next decade. Barratt Developments Plc (BDEV), the U.K.’s largest homebuilder by volume, said last week that it wouldn’t be appropriate for it to pay an interim dividend.
“This is more ambitious even than Berkeley Group’s return,” Peel Hunt LLP analyst Robin Hardy said in a note. “This approach to the cycle is generally what we have been advocating, with resistance to a return to aggressive volume growth, possible shrinking of the business scale and slimming the capital base to improve returns.”
Persimmon’s full-year net income dropped 5.5 percent to 109 million pounds, or 35.9 pence a share, the company said today. Analysts expected earnings of 34 pence a share, the average of five estimates compiled by Bloomberg.
Homebuilders are widening their profit margins by focusing more on house and developing low-cost land bought during the recession that ended in 2009. The U.K.’s coalition government is trying to spur construction after homebuilding in England and Wales fell in 2010 to the lowest during peacetime since 1924.
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