Spend £1,000 on Persimmon shares at their present level and you will get back about £400 over the next five years under the capital return plan put in place in 2012 and increased this year.
Persimmon is our second-biggest housebuilder and is focused on the first-time buyer, with nothing in London. It is throwing off huge amounts of cash and is one of those in the sector returning it to investors, about £1 billion into a £2.76 billion cash return plan. This equates to another 550p a share by 2021. The shares, which at one stage after the referendum vote had virtually halved, fell 103p to £13.32 yesterday.
There is almost nothing, short of an asteroid strike on the planet, that would seem to prevent those dividends being paid. Persimmon had £462 million in cash at the June half-year end. It is generating about £400 million of free cashflow a year. It has six and a half years of land available to build on, has a strategic land bank of about the same again without planning permssion yet and has replaced the number of homes sold over the half year with fresh plots.
The company has detected no significant fall-off in demand since the vote. It is in areas and markets where confidence is least likely to be affected. It would take some unthinkable upheaval in the housing market to cause Persimmon any problems.
The availability of mortgages is not going to dry up — indeed, they should be cheaper. The halfway figures show all the usual metrics moving in the right direction, such as average selling price, margins, homes sold and private sales even up on last year despite the uncertainty before the referendum.
The company is slightly reducing the number of outlets actively open for sales, but this is merely because it was having difficulty keeping up with demand and buyers were being disappointed because their homes were not ready on a given date. Henceforth they will be released later on in the process.
A yield of 8 per cent means Persimmon, along with several other housebuilders, is now providing a better income than traditional high payers such as the two big oil companies. Another of those cases where, unless you think the world is coming to an end, the shares look like a steal.
MY ADVICE Buy
WHY It is hard to imagine what cataclysm could occur in the housing market that could prevent the planned return of capital to investors
Marshalls
Marshalls shocked the market in May by reporting flat sales across its commercial and public sector business, which comprises about two thirds of revenues. The latest update suggests this was probably a bit of a blip.
UK sales, almost all the business, were ahead by 5 per cent. In domestic, laying new paths and patios for homeowners, they were ahead by 12 per cent. In public sector and commercial, they rose by 2 per cent. Marshalls’ domestic customers are almost by definition older, well-heeled and probably not much inclined to worry about factors such as the referendum when contemplating a new driveway. Its public and commercial sales tend to be “end cycle”, as projects come to be finished, and there is a lot of work building up on the railways, on Crossrail and on infrastructure work on stations.
Marshalls tracks the progress being made by its small installers carrying out that domestic work. They have tended in the past to have eight to nine weeks’ sales already contracted; over the past couple of years this has risen to 11 or 12, which is a healthy enough sign. Obviously, there will be uncertainties ahead. Marshalls’ shares are exactly the sort of domestically focused stock that will suffer in these markets and those dire construction industry figures on Monday will not have helped sentiment.
The shares fell another 17¼p to 213p yesterday. Those recent falls look overdone, but on 12 times’ earnings they still do not look exceptionally cheap.
MY ADVICE Avoid
WHY Despite some falls, the shares look fairly rated
Staffline
The performance of headhunters’ shares had been woeful even before the referendum because the uncertainty was seen as putting off employers from hiring. They have fallen sharply since.
Dragged down with them has been Staffline, though it isn’t really like the others. It places temporary workers in areas such as food manufacturing or driving heavy goods vehicles. Much of the business is based on getting the long-term unemployed back into the workplace via the government’s Work Programme. Clearly, if those food factory workers or HGV drivers are from eastern Europe, the supply will dry up a couple of years hence. This, though, would increase the attraction of indigenous workers, especially those unemployed. Demand from those employers is not going to dry up.
Staffline’s trading update indicates all is proceeding as it was and the company has high visibility of its workload. The shares, off 25p at 775p, have come back from £14 this year. They sell on seven times’ earnings. Again, this looks like a good entry point for those sanguine enough about the next couple of years.
MY ADVICE Buy
WHY Staffline looks solid enough whatever happens
And finally . . .
International Public Partnerships, or INPP, is one of the first companies since the Brexit vote to put its head above the parapet and raise fresh equity. This is hardly surprising: its business model, investing long-term in infrastructure projects and recycling this as dividends, is hardly going to be affected. Indeed, the lower pound will have inflated values of assets held overseas. The company wants £75 million to fund other potential investments. The last cash-raising was oversubscribed and this one probably will be, too.
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