July 4, 2019 / 6:22 AM / in 8 months

Homebuilder Persimmon sees revenues fall as it slows new home releases

(Reuters) - Persimmon (PSN.L), Britain’s second-largest homebuilder, suffered a drop in revenue in the first half of the year as it delayed sales closer to the completion of properties in order to improve customer satisfaction.

FILE PHOTO - Builders construct modular Space4 homes on a Persimmon development in Coventry, February 22, 2017. Picture taken February 22, 2017. REUTERS/Darren Staples

Confronted with criticism over the quality and fire safety of its homes, the FTSE 100 builder launched a review of its business practices in April and decided to push back the timing of sales.

That decision was likely to skew revenue towards the second half of the year, analysts said, and margins were flat despite the rising cost of building materials.

“Perhaps more important is the fact selling prices have kept moving forwards, despite the negative PR Persimmon’s been facing,” said Sophie Lund-Yates, Equity Analyst at Hargreaves Lansdown.

Persimmon, which builds homes in more than 350 locations in the UK, reported on Thursday a 4.5% fall in revenue to 1.75 billion pounds for the six months ending June 30.

It said its annual underlying housing operating margin of 30.8% for 2018 was a reasonable guide for the first half of the year.

“First half update points to a slightly softer volume picture as the group has worked to improve quality and customer service by delaying site releases. The margin profile however looks slightly better than expected,” Peel Hunt analysts said.

Analysts expect pretax profit of 1.12 billion pounds for the financial year 2019 according the Refinitiv IBES.

The company, founded in 1972 and headquartered in York, said there were some early signs that its strategy shift was beginning to bear fruit but offered no further details.

The shares were down 1.8% to 1,952 pence by 0901 GMT. They have underperformed rivals including Berkeley (BKGH.L) and Taylor Wimpey (TW.L) over the last twelve months.

“Until tangible evidence of improvement in customer service is seen, sentiment towards the stock is likely to remain difficult as investors worry about a continuation of negative press/social media and government attention,” Jefferies analysts said.

Shares of homebuilders were buoyed briefly last week after media reports that prime minister candidate Boris Johnson was preparing an emergency budget for a no-deal Brexit that included cuts in stamp duty and taxes. However, Tuesday’s weak UK PMI construction data weighed on the sector again.

Persimmon’s focus on cheaper family homes helped it increase sales in 2018 even as the overall housing market remained sluggish with continued uncertainty surrounding Britain’s plan to leave the European Union.

In the first six months of this year, however, Persimmon said it had delivered 7,584 homes, fewer than the 8,072 delivered during the same period of 2018.

The company, which has been a big beneficiary of the government’s “Help to Buy” public funding scheme, said average selling prices of its homes rose to 216,950 pounds from 215,813 pounds a year earlier.

Barratt Developments (BDEV.L) will issue a full year trading update next week, while Bovis Homes BVS.L will publish its first-half trading update.

Reporting by Samantha Machado and Noor Zainab Hussain in Bengaluru; Editing by Tomasz Janowski and Elaine Hardcastle

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