UK-focused house builder Persimmon (LSE: PSN) has been a cracking investment for those holding since the post-credit-crunch lows. Back in December 2008, the shares were trading below 200p but today they change hands at 2,356p, or so. I’ll let you do the maths, but that’s a decent investment outcome by most standards.
Exceeding targets on investor income
Yet capital gains are only part of the story. During 2012, the firm set out what looked at the time ambitious plans for returning cash to shareholders as far ahead as 2021. I remember many were sceptical that the firm could see ahead with such accuracy. The doubters were right… on 27 February 2017, the directors announced another additional payment under the firm’s capital return plan of 25p per share, which cost the company £77m to service.
The extra payment lifted the total value of the plan to £2.85bn, or so, which works out at around £9.25 per share to be returned to shareholders by the end of 2021. That’s an increase of 49% over the firm’s original capital return plan from 2012. Persimmon is on course to blow its own targets out of the water! As well as capital gains, the company is delivering big on dividends. Wow!
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More to come?
But I think there’s yet more to come from Persimmon. In a trading update this morning, the firm described its performance in the first half of the year as “excellent”. Highlights include legal completion volumes up 5% compared to a year ago, average selling prices 3.5% higher, revenue shooting up 12% and, in an indication that operational momentum remains robust, forward sales value at the mid-point of the year was 18% higher than the year before.
The economics of the sector have been favourable since 2008, of course, with demographics and affordable mortgages keeping demand high. However, Persimmon’s good trading has made the firm strong financially and the directors expect the company to navigate easily through the next economic downturn. I reckon the unpredictable effects of the firm’s inherent cyclicality keep the valuation down because we never know for sure when the next downturn will arrive. Nevertheless, a forward price-to-earnings (P/E) ratio running at just over 10 for 2018 and an annualised forward dividend yield of 5.4% keep the shares looking attractive.
Undemanding valuation
Meanwhile, premium building products, systems and solutions provider Alumasc Group (LSE: ALU) also sports an undemanding valuation. With the shares at 183p, the forward P/E rating sits at just over 8.5 and the forward dividend yield is a shade over 4%. City analysts following the firm expect earnings to lift 7% for the year to June 2018 and those earnings should cover the dividend payout almost three times.
We last heard from the company on 21 February when it announced a contract win. Back then, the firm’s order book hit a new high at £32.9m hard on the heels of a 17% rise in first-half revenues to £50.7 m, which the company proclaimed to be “well ahead of UK construction market growth.” So Alumasc has been trading well but it is another cyclical firm tied to the fortunes of the construction market, a fact that is keeping a peg on the valuation in my opinion. Having said that, the dividend does look attractive. We’ll find out more with the full-year results due around 1 September.
