Persimmon blazes a trail but sounds cautious note

Published on Tuesday 7 July 2009 21:23

A WAVE of optimism swept over the embattled housing sector yesterday as a robust trading update from the UK's largest housebuilder gave hope that the worst may be over.

Persimmon said that trading volumes were ahead of last year and revealed that it was due to start work on 50 new sites across the UK.

Financial director Mike Killoran said sales were holding up well north of the Border, adding that Scotland had not seen some of the "peaks and troughs" experienced elsewhere in the UK.

Experts claimed the buoyant report offered hope for the industry ahead of updates from Barratt Developments, Redrow and Bovis Homes later this week – but Persimmon bosses warned that it was too early to herald "green shoots" of recovery.

Shares rose higher across the sector, with Persimmon closing 7.4 per cent, or 27p, higher at 390.25p.

Keith Bowman, analyst at Hargreaves Lansdown, said: "Persimmon's update is raising hopes that the worst for the house building sector may be over." He added that "a sense of perspective is still required" given the lack of mortgage availability.

Chris Millington from Numis Securities added: "Overall, we feel this is a good statement and confirms that the pick-up in housing demand continues to feed through."

Persimmon, which ranks as the biggest UK player by market value, said forward sales revenues were 700 million at the start of the second half, against 458m on 1 January, adding that prices were stabilising in some locations.

It had also cut its debt by nearly half in the past 12 months to 495m, and expected no more writedowns of the value of its land holdings.

Killoran told The Scotsman that business on the west coast was doing better than that on the east – due to Edinburgh's increased exposure to the recession-hit financial services sector. Of the nine new sites in Scotland, five are in the west and four in the east.

He said: "Scottish sales got tougher at the back end of last year, but have picked up now.

"However, at this point in time, it seems that things are slightly better in the west than in the east. I think the fact that Edinburgh has so many people working in financial services is probably key – that people are less keen to part with their money at the moment when things are still uncertain."

But Killoran warned that a relatively good start to 2009 did not necessarily signify green shoots in the industry.

"We are definitely encouraged by the improvement rate of sale compared with last year – but the driver of the market is the availability of mortgages and employment prospects, which are still a concern to prospective customers."

Jonathan Fair, chief executive of Homes for Scotland, which represents companies building 95 per cent of new homes across the country, warned: "At a time when buyers are showing increasing levels of interest in purchasing new homes, the big stumbling block to converting this into sales remains the availability of mortgage financing."