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Persimmon Points the Way in the Gallop to Build Desperately Needed New Homes

By Malcolm Stacey | Thursday 6 July 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Hello Share Stackers. Though it sounds like a hero from Ancient Greece, Persimmon (PSN) is a popular British house builder. And it’s doing better than many of its competitors.

But there is some bad news this week on house sales. Fewer people are applying for mortgages, according to official figures. Also, house prices in some areas are on the back foot.

But for Persimmon, sales rose by nearly a tenth in the first half of this year. The price it charged for homes went up by about 3.5%. It’s a big firm and revenue rose by 12% on last time. It now stands at £1.66 billion. 

It’s my view, for what it’s worth, that house prices will recover soon and forge ahead. My reasons have been aired before on this beloved website.

To repeat them for luck, we have supply dwarfed by demand, tiny interest rates and cheap mortgages. New home aspirants still need huge deposits, but you can bet that Whitehall will be working on that, as it tries to increase home ownership. 

I’ve had recent experience of stingy landlords and I can attest to the fact that renting is a poor option compared to home owning. If the government, and indeed the opposition, sticks to promises to make homes more affordable, all house builders should see a benefit.

Though low interest rates won’t last for ever, there is no real sign of the Bank of England moving on that. If it does raise rates, it will probably be by a quarter of one per cent.

Persimmon tends to avoid London and the South East where present house prices are unsustainable. It also has large slabs of land, which protects it from rising prices for plots. It’s opened nearly a hundred new sites this year alone. And it expects to move in on as many again before the year’s end. There’s a reasonable dividend, too, with a prospective yield of nearly 5.5%.

And now it’s time to rejoin the Punter’s Return.

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