Tony's Stocks to Watch

Having commented on the company last in July/August 2010 when the share price was £3.63, it is nice to see it go back to just over £5.00, which is a rise of 37% in less than 18 months.

In a trading statement today, the company said it expects a 50% increase in underlying pre-tax profits.  Although the general economic scene in the UK housing market remains difficult, Persimmon have experienced high levels of visitors, good sales with low cancellation rates and stable prices.

Completions for 2011 came in at 9,360 homes against 9,384 homes for 2010 which is no mean feat in these markets.

Importantly the underlying profit margin for the year should approach 10%, with the second half slightly better at 10.5%.

The management continue to run the business in a way that most companies can only dream of.  The individuals are all highly experienced and I have said on many occasions, management is critical in any business with housebuilding no exception.  Indeed, Persimmon has introduced a number of measures to make life a bit easier including securing improvements in existing planning permissions, cost controls and converting land from its land bank for future development.

I said back in July 2010 that historically the housebuilding sector has stood out in the 6 month period that followed the last 12 general elections and with the benefit of hindsight it appears to have continued in that vein.

With the current land bank owned by Persimmon the future looks bright.  There is no guarantee that the housing market will continue to recover but I think it is fair to assume that unlike a number of European countries where rental is high, the UK is more geared to buying a home.  With interest rates looking to stay low and the introduction of the Government’s First Buy Scheme, the future looks promising.

Clearly, today‘s figures were very good in extremely difficult circumstances and I would concur with the view of a number of leading brokers who continue to suggest that the shares look good value.