Two of Britain’s biggest housebuilders, Persimmon (PSN) and Taylor Wimpey (TW), released full-year results this week as dark clouds gather over Britain’s housing market. On the FTSE 250, Bovis (BVS) also reported annual results.
According to the Nationwide building society, UK house prices registered their first monthly fall in six months in February, following similarly negative data from Halifax. Estate agent Foxtons (FOXT) reflected the problems in London and the south-east with a 65% fall in yearly profits.
Persimmon’s annual results were this year overshadowed by a pay row over the chief executive’s proposed £110 million bonus, which institutional investors described as “preposterous” and a “governance failure”.
The prospect of a pay revolt is a possibility at the company’s AGM in April – but otherwise should its investors be happy? Since the recession ended Persimmon has engaged in a multi-year capital return plan for shareholders, which will be worth around £13 a share in the ten years to 2021. This year’s annual dividends will be doubled to 235p a share. The shares currently yield close to 10%.
Persimmon shares rose nearly 5% on the results day as investors rallied behind the 25% rise in pre-tax profits to nearly £1 billion. The company’s net cash broke through the £1 billion barrier to hit £1.3 billion, against £900 million at the end of 2016.
UK Housing Market Still 'Solid'
Fellow FTSE 100 giant Taylor Wimpey was upbeat about the housing market in 2018 despite fears over Brexit and recent house price surveys.
“We have been encouraged by early trading patterns at the start to the year and despite some wider macroeconomic uncertainty, consumer confidence remains robust and market fundamentals are solid," said chief executive Pete Redfern.
The percentage of its sales made through the Help to Buy scheme, introduced by former Chancellor George Osborne, is now close to half, compared with around 39% of sales in 2016.
Its results were overshadowed by a one-off £130 million hit to profits from leasehold disputes with buyers. Excluding this item, pre-tax profits were £812 million, up 11% from the year before. Like Persimmon, Taylor Wimpey announced a hike to its full-year dividend.
Are listed housebuilders now becoming just high income stocks rather than the growth proposition seen in the boom years of the housing market?
The case of FTSE 250 firm Bovis may suggest so. The company’s pre-tax profits fell 26% in the full year and it sold fewer houses than in 2016. Nevertheless it declared a special dividend and hike its full-year payout to investors. Its yield, at over 4%, is substantially lower than Persimmon. The share price rose nearly 2% on Thursday’s results and – barring the recent market selloff – the shares are still within touching distance of record highs.
Barratt Developments (BDEV) released half-year results last week, in which it raised its interim dividend by nearly 20% and announced a special dividend of £175 million to be paid in November 2019.