Persimmon continues to surge higher with new record high

With strong margin growth, a 30% hike in profits and encouraging levels of customer demand, Persimmon's half-year results have gone some way to silencing the housing market pessimists for a little longer.

Investors appear to share in the optimism, with the Persimmon share price driving upwards again to another all-time high in the wake of the update. Shares increased as much as 3.6% Tuesday to 2,650p before settling at 2,590p.

Whether this continues is the subject of intense debate among property analysts, with UBS's Gregor Kuglitsch among those who think there's a little further to go.

His 'buy' rating and target price of 2,600p is accompanied by expectations for upward momentum in the full-year margin consensus of slightly over 26%. In the first six months, the figure jumped to 27.6% from 23.8% a year earlier.

Kuglitsch also thinks the results and strong cash flow generation will ultimately lead to increased dividend payments above the current commitment for a minimum return of capital of 110p a year until 2021.

The company has already returned surplus capital of £4.85 per share, equivalent to £1.5 billion, and about £630 million more than originally planned in its long-term strategy plan of 2012.

With its high return on equity, Persimmon trades at a 30% premium to the sector, according to Liberum's Thomas Buisson. He continues to favour growth stocks in the form of Galliford Try, Bellway, MJ Gleeson and Redrow.

Buisson, who has a 'hold' rating on Persimmon, believed that the housebuilder's rising operating margin partly reflected the benefits of bringing through cheaper land.

Persimmon reported little change in market conditions, with customer interest over the last seven weeks still robust and its average weekly private sales rate per site 2% ahead of the same period last year.

Despite fears of a market downturn caused by Brexit uncertainty and rising inflation, healthy employment levels and record-low interest rates appear to be sustaining buyer interest.

Persimmon said customers are also finding good levels of support from mortgage lenders after the approval of about 195,000 loans during the second quarter of 2017. This figure is very similar to a year earlier, despite the uncertainty of the general election result.

Persimmon added that the value of its forward sales was now 15% stronger than at the same point last year at £2 billion. It has 6,669 new homes forward sold, with an average selling price of around £231,500. Half-year profits were up 30% to £457.4 million.

Since Persimmon launched its long-term strategy at the start of 2012, the company has delivered about 72,500 new homes across the UK. It has also invested nearly £3 billion in new land and opened about 1,100 new sales outlets.

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