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He Khaki (LSE:PSN) share price rose 5% in morning trading on November 7, after the housebuilder published a third quarter update.
It comes as we hear that house prices have risen for the first time since March. According to Halifax, October was 1.1% ahead of September, due to a shortage of properties for sale.
However, Persimmon stock has a long way to go to recover from the 2022 crash. But are we finally seeing some light?
On time
New home completions in the quarter fell 37% compared to the third quarter of 2022. And term sales decreased 23%.
But that’s what the city expected, so it’s no surprise.
CEO Dean Finch did note that “The short term is likely to remain a challenge.“.
But the general opinion I have is that Persimmon is very focused on the long term. And, as an investor, that’s exactly what I want to see.
panorama
This year at least it seems that it will not be worse than feared.
The CEO said: “Trading during the period was in line with expectations and prices were generally stable. We are on track to deliver around 9,500 quality new homes in 2023 with an operating profit in line with expectations and with an operating margin similar to that of the first half.“.
I don’t really care too much what the short-term prospects are like. But that sounds pretty good.
He added that “We continue to position the business for growth when the market recovers.“.
What recovery?
So will the real estate market recover? I don’t want to be too optimistic based on a bullish month. But in the long term I don’t see how it won’t be possible.
There is a chronic housing shortage in the UK. And that should surely turn the construction business into a long-term source of income.
However, there are some short-term risks.
I think the main one is the valuation of the shares. Persimmon’s share price has lost 50% in five years. But after a years-long housing boom, had it increased too much? I could have done it.
Is correction needed?
According to brokers’ forecasts, we are at a price-to-earnings (P/E) ratio of 14. If anything, I think it might be a little high right now.
It would fall to around 10 by 2025, assuming profits start growing again. And these forecasts are always a little old, as it can take months for them to be updated as things change.
Dividend forecasts also vary quite a bit, from around 5.5% to almost 7.5%, depending on who you ask. That shows uncertainty, without a doubt.
Dividend uncertainty
The third quarter update didn’t tell us anything new on the dividend front. So all we have now is the interim dividend of 20 pence per share.
Persimmon’s focus is on cost control. And if cash is tight, the dividend could be cut.
So while even 5.5% seems like a good return to me, I understand why people might be a little cautious.
But all this uncertainty and pessimism tells me one thing. He says I want to buy more Persimmon shares.
