The persimmon (LSE: PSN) The share price was on the rise this morning (8 August), even though the company reported a drop in profits for the first half of 2024.
However, looking beyond that, I believe there are many reasons for shareholders to be optimistic.
Top of the manual
Let’s put that negative aspect behind us for now. Reported pre-tax profit for the six months to the end of June was £146.3 million, slightly down on the £151 million achieved a year earlier, but I think that’s still impressive considering the economic headwinds that construction companies as a whole have faced in recent years.
On a positive note, sales rose 11% to £1.32 billion, driven by a slight increase in the average selling price of new homes to £263,288.
Home completions also reached 4,445. The company said it now targets 10,500 for the full year, at the high end of its previous forecast—exactly what investors like me want to hear.
Is there more to come?
While it pays to keep my expectations in check for any stock in the short term, I am increasingly optimistic about my holding in Persimmon and the property market in general.
Whether or not the company achieves its target of building 1.5 million homes over the next five years, the new government’s desire to overhaul planning laws will be welcomed by the industry and the company is clearly looking to capitalise. A total of £195 million was spent on land in the first half of the year. The land stock now stands at 81,545 plots.
The entry of Keir Starmer and Co. also appears to have boosted demand. Since the beginning of July, the net private sales rate has been 0.69, an increase of almost 70% compared to the previous year. The private order book rose by 28% to 1.12 billion pounds.
Taking into account the first interest rate cut at the beginning of August, the course seems to be set for a robust and sustainable recovery.
But bias aside, it looks like my patience – I started buying about 18 months ago – is slowly paying off.
Everything included in the price?
Or maybe I’m getting ahead of myself. With the stock up nearly 40% over the past 12 months (and 15% year-to-date), you can argue that a lot of the good news is already priced in. Persimmon shares were already trading for nearly 19 times forecast earnings before the market opened this morning. That doesn’t exactly scream value. To really make a difference from here, expectations may need to be exceeded.
A slight recovery in UK inflation could also keep the share price in check for a while. In fact, it could prompt the Bank of England to postpone further interest rate cuts for the time being, thus taking some of the initial excitement out of the property market.
One consolation is that I should receive dividends in the meantime, even if they will be much lower than before after a sharp cut in 2022. Analysts expect the company to generate a yield of just under 4%.
Taking all of these points into account, I am happy with my investment. Any slight fluctuation in the coming months would tempt me to buy more.
The post “Persimmon shares rise after strong first half. Is there more to come?” appeared first on The Motley Fool UK.
Further reading
Paul Summers owns shares of Persimmon Plc. The Motley Fool UK does not own any of the stocks mentioned. The views expressed in this article on the companies mentioned in this article are those of the author and as such may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.
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