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Builder Khaki (LSE: PSN) delivered its full-year results today and shares are almost 10% lower than yesterday.
However, with the share price nearing 1,319 pence, it is now 43% below its level a year ago.
A negative outlook for 2023
It looks like the outlook statement did the damage today. Chief Executive Dean Finch said the new home market “remains uncertain”. But the company’s marketing campaign helped improve sales rates in the new year from the lows seen in late 2022. But they still declined year-over-year.
Finch said sales prices have been resilient. and the company “responded quickly” to the general malaise in the housing market last year to “stimulate sales, improve cost controls, and preserve cash.” And on top of that, directors slowed investment in new land in the fourth quarter of last year.
However, Finch believes that the sales rates over the past five months mean the terminations will be “down noticeably” in 2023. And that will lead to lower profits. However, the directors have not provided any forward-looking guidance on potential trade figures.
The big danger for investors now is the inherent cyclical nature of the company’s operations. For example, if the new home market deteriorates further, Persimmon’s stock may drop. But, on the other hand, there is undeniable recovery potential in the business.
But it’s always tricky trying to time a stock investment in a cyclical company like Persimmon. However, there are many positives in the numbers. For example, new home completions were up a bit last year. Like new home sales prices. And underlying profit before tax was up 4% yoy.
But there could be more pain ahead for shareholders. You see, the current forward sales number showed a decrease from the number a year ago. It stands at close to £1.52 billion, up from £2.21 billion 12 months earlier. And City analysts expect profits to fall nearly 50% this year.
Solid market fundamentals
The company said the forward sales position reflects the “significant” drop in private sales rates in the fourth quarter of 2022. But cancellation rates since then “it returned to typical historical levels.”
Meanwhile, shareholder dividends are falling. There will be a final dividend for 2022 of 60 pence per share, scheduled as the “only dividend with respect to the year 2022”. And for 2023, the directors expect to maintain the 2022 dividend with a view to growing it over time.
For context, shareholders received total dividends of 235 pence per share in 2022, representing the return of capital for the 2021 business year.
Despite this belt-tightening, Finch said that looking beyond 2023, the fundamentals supporting demand for new homes are strong. And the company points “disciplined growth in the coming years”.
In general, Persimmon is not an easy stock or business for investors to analyze at this time. Therefore, doing a lot of research seems important before you jump in and buy stocks.
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