Key points:
- Persimmon shares plunged 9.3% after its 4-month update.
- The homebuilder’s weekly sales fell as cancellations surged.
- Investors reacted negatively to the trading update.
The Persimmon plc (LON: PSN) share price plunged 9.3% after the British homebuilder reported lower weekly sales rates per outlet of 0.60, compared to 0.78 in a similar period last year. The company also reported witnessing a higher cancellation rate on new homes as buyers rescinded their offers in the challenging economic environment.
Investors reacted negatively to the news, which paints a gloomy picture of the UK economy as the government plans to unveil a range of new taxes and cost-cutting measures to shore up the economy after the spectacular crash of Trussnomics under former Prime Minister Liz Truss.
Also read: The Best Undervalued Stocks To Watch In 2022.
The high-interest rate environment also does not favour the home-building industry as the cost of borrowing has increased, locking some people out of the market. However, Persimmon highlighted the strength and experience of its management team as a critical factor that could help it navigate the current real estate market cycle.
Persimmon has a highly experienced senior management team that has been through all market cycles guiding the company’s operations. The firm is currently focused on building quality homes for its customers in the most cost-effective manner so that it can continue offering some of the lowest prices in the market for new homes.
The homebuilder expects to have £700 million in cash at the end of December after returning £750 million to shareholders. The firm also highlighted that it had set aside £350 million to cater for the broader mandate set by the government in improving the safety of homes built in the past, which includes the cost of removing cladding from multi-storey buildings.
Despite Persimmon’s positive expectations, investors reacted negatively to the lower sales figures and higher cancellations, which the company can do little about as the British economy undergoes a challenging period marked by record-high inflation and high borrowing costs.
Persimmon shares have fallen 58.4% this year and are trading in the middle of a small range. I would buy the shares on a bounce off the lower support level. However, there is a risk that the shares could beak below the support level and head lower.
*This is not investment advice.
Persimmon share price.
The Persimmon share price plunged 9.30% to trade at 1200.0p, falling from Monday’s closing price of 1323.0p.