Persimmon, a UK housebuilder, has seen its share price drop by 60% since the summer of 2021. However, the shares are now trading for 20% less than they were in April 2020, when building sites across the country were closed due to Covid-19. The Bank of England has increased interest rates 11 times in 17 months to try and tame inflation, which has affected disposable incomes and confidence in the housing market. The International Monetary Fund predicts that interest rates will fall to pre-pandemic levels once inflation is sustainably lower, and the BoE expects inflation to be back below its 2% target by early 2024.
The company’s annual dividend was cut from 235p to 60p earlier this year, but the directors have announced that they are expecting to sell around 9k homes in 2023, which would give earnings this year of £585m. Persimmon has a reputation for returning a large proportion of its profits to shareholders, and the directors are being cautious. The writer believes that the company will want to be building at least 14,000 houses a year before the dividend is restored to 2020 levels, which probably won’t happen until 2025 at the earliest.
The writer sees no reason why Persimmon shares will not reach £30 again, but it may take a few years. An increase in completions from current levels will be driven by lower interest rates on the back of falling inflation, and with an election due before January 2025, all political parties will be looking to attract voters. The writer already owns shares in Persimmon and would be happy to have the stock in their portfolio.
Keywords: Persimmon, UK housebuilder, share price, interest rates, inflation, dividend, shareholders, building, completion, election.
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