Will Persimmon plc Beat Taylor Wimpey plc, Berkeley Group Holdings PLC, Barratt Developments Plc And Bellway plc After Today’s Trading Update?

Is Persimmon plc (LON:PSN) (LSE:PSN.L) a more appealing buy than Taylor Wimpey plc (LON:TW) (LSE:TW.L), Berkeley Group Holdings PLC (LON:BKG) (LSE:BKG.L), Barratt Developments Plc (LON:BDEV) (LSE:BDEV.L) and Bellway plc (LON:BWY) (LSE:BWY.L)?

Persimmon plc
Persimmon plc

Persimmon plc (LON:PSN) (LSE:PSN.L) has released a trading update for 2016. Revenues of £3.14 billion were 8% higher than the prior year, with legal completion volumes rising by 599 new homes to 15,171. The average selling price increased by 4% to £206,700.

Sales reservations in autumn were strong since Persimmon believes that buying a new home remains very affordable. This is aided by competitive mortgage offers, with the company’s private sales rate for H2 being 15% ahead of the prior year. H2 legal completion volumes of 7,933 were 695 stronger than in H1.

The value of the company’s forward sales as at 31 December was £1.23 billion, which is 12% ahead of the prior year. New businesses in Cornwall, Scotland and Nottingham have proven successful so far. Around 18,700 plots of new land in 83 locations were acquired during the year and Persimmon sees good opportunities to acquire additional land while remaining mindful of Brexit. Its cash balance of £913 million should help it to weather difficult trading conditions, while an improvement in gross margin in H2 shows that it has strong control over its development costs.

In the last year Persimmon shares have fallen by 5%. While disappointing, this is a better performance than sector peers Taylor Wimpey plc (LON:TW) (LSE:TW.L), Berkeley Group Holdings PLC (LON:BKG) (LSE:BKG.L), Barratt Developments Plc (LON:BDEV) (LSE:BDEV.L) and Bellway plc (LON:BWY) (LSE:BWY.L). Taylor Wimpey is down 16%, Berkeley is 19% lower, Barratt has slumped by 19% and Bellway is down 7% in the last 12 months.

In my view, Persimmon is a relatively appealing long term buy. In the short term, I feel that UK house prices may fail to rise significantly due to the effects of Brexit. Therefore, I think it could be volatile so isn’t a stock on which to utilise the leverage which spreadbetting offers. However, in the long term rising inflation could make a house purchase and the debt which comes with it more attractive for first time buyers. Due to this as well as a continued lack of housing supply given likely future demand, Persimmon could be a strong performer on a relative basis in my opinion.

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