NEWSLETTER
Image source: Getty Images
On Tuesday (March 12), Khaki (LSE:PSN) told us it expects another tough year in 2024, and that hasn't helped the share price.
“While we are prepared for 2024 to be another challenging year, we are confident in our ability to manage it.”the update said. Shares fell 3% in early trading.
Despite an increase at the end of 2023, we are still looking at a 40% drop in five years. Is Persimmon a stock to consider right now? I think so.
Fiscal Year 2023 Results
The homebuilder revealed a 33% drop in home completions in 2023. However, the median sales price was up a little at 3%.
The key problem is that margins are falling. The underlying gross margin on new housing fell from 30.9% in 2022 to just 20.5%.
And although total revenue fell 27%, underlying operating profit plunged 65%.
Still, a bad year like 2023 doesn't happen very often. And the fact that we still made a profit in a year like that tells me good things.
Oh wait, another tough year is coming. He still would never judge the company based on a double like this, of course.
How much cash?
With £420m of cash on the balance sheet at the end of the year, I don't think we need to worry about Perismmon going bust. However, it is just under half the 2022 figure of £862m.
The board maintained the dividend at 60 pence per share. That's a 4.5% return on the current share price. It's behind the great returns we've seen in the past. But I think it's still pretty good for the worst year the business has seen in a long time.
Uncertainty over whether it can be maintained in 2024 is a risk, and could see the share price suffer if it is cut.
The board said its intention is to “maintain at least the 2023 dividend per share in 2024, with a view to increasing it over time as market conditions allow.” But I think it's too early to assume that will happen.
Verdict
So what's my verdict on Persimmon now? Well, this set of figures is not too important. We expected them to be down, and they were.
My main concern now is that 2024 may be a little worse than we expected. I thought interest rates would drop in the first half of this year and then fall fairly quickly. There's a good chance that won't happen.
I don't expect us to get much out of the Persimmon share price this year and I can see sustained weakness.
Long-term
However, the stock remains a long-term option for me. Assuming the company can get through this difficult next year in good shape, that is. The liquidity situation gives me good hope that this will be the case.
As CEO Dean Finch said: “Although the near-term outlook remains uncertain, significant pent-up demand for housing remains unchanged..”
Okay, yes. There aren't enough homes in the UK and there are too many people who want them. I'm happy to invest some of my money in building them and plan to buy more.
