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Khaki (LSE: PSN) have long been a high performance leader in the FTSE 100. Economic fundamentals in the UK now appear to support share price gains. To me, these two factors together make stocks look cheap at current levels.
The UK economy is looking better than previously thought
The UK housing market is supported by the state of the economy, and the outlook for both has improved recently. The UK economy experienced zero growth between October and December 2022, according to the Office for National Statistics. In March, the Office for Budgetary Responsibility (OBR) said it expects the economy to contract 0.2% in 2023. However, it added that it does not foresee two successive three-month periods of economic decline. This means that Britain will not go into a technical recession. In short, the UK economy is likely to improve.
However, even these figures seem too pessimistic to me, and I am not alone in this opinion. OBR professor David Miles said his “central estimate” in the Autumn Statement was “virtually certain” to be wrong. The central estimate is the economic outcome that he considers most likely. This is because this estimate does not anticipate changes in the prevailing economic circumstances. The economy was reeling from spiraling energy prices, inflation and interest rates at the time. However, these appear to be on a downward trend again this year.
Persimmon performed exceptionally well in difficult times.
A key fundamental positive for me is that even in the extremely difficult operating environment of 2022, Persimmon performed strongly. Its 2022 results showed an increase in total group revenue to £3.82bn, from £3.61bn in 2021. On an underlying basis, pre-tax profit grew to £1.01bn in 2022 from £973 million from the previous year.
It was also positive that new home completions increased to 14,868 in 2022 from 14,551 in 2021. Construction rates also increased 8% year-over-year, with the second half of 2022 showing a 15% increase. The company also showed strong cash generation of just over £1bn in 2022. Retained cash at the end of 2022 was £861.6m, reflecting heavy investment in land, works in progress and return on capital.
Persimmon promises another dividend bonanza
Given this pile of cash, Persimmon paid dividends of 125 pence per share on April 1, 2022 and 110 pence per share on July 8, 2022. For 2022, the company proposes a final dividend of 60 pence per share to be paid on May 5, 2023. This gave an impressive dividend yield for 2022 of 14.14%. By 2023, Persimmon intends to at least maintain the 2022 dividend, with an eye toward increasing it.
One potential risk as a shareholder is that UK inflation and interest rates may not start trending lower again in 2023. This would lead to continued caution from new home buyers and likely drag down the price a bit. of actions.
However, the high ongoing payments on Persimmon’s shares are reason enough for him to continue holding them. Any increase in the share price is a bonus.
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