25 Sept 2022

Labour and material shortages to drag down building volumes for Persimmon

Labour and material shortages to drag down building volumes for Persimmon

The cost impact of labour shortages and supply chain disruption on the housebuilding sector will be picked apart by investors when Persimmon unveils its half-year financial results on Wednesday.

In July, the housebuilding giant warned that a multitude of constraints hitting the industry have slowed down building across the first half of the year.

The trading update led its share price to decline as investors reacted to the warning.

In the face of labour and material shortages and planning delays, Persimmon saw a double-digit drop in completions over the first six months of the year.

Completions were down 10% year-on-year to 6,652 and revenues dipped by 8% to total £1.7 billion, it said in its July update.

Building costs have also shot up in line with rising inflation, soaring energy prices and trade disruption, exasperated by the ongoing war in Ukraine.

But the group has been able to cushion the blow of cost inflation thanks to a 4% increase in average house prices, it said.

Analysts will be eyeing up Persimmon’s balance sheet to determine how far higher property selling prices have offset steeper build costs.

Charlie Williams, an equity researcher at Hargreaves Lansdown, said: “News has already been received from Persimmon that revenues are slightly down from last year as the group struggled to meet home delivery expectations in the first half of 2022.

“That said, a 4% rise in the group’s average selling price has more than offset cost inflation.

“Close attention will be paid to the impact it has had on profits and if management expects this trend to continue.”

Looking beyond the limitations in the first half of the year, analysts have a more optimistic forecast for the whole year as demand for new homes will keep the housebuilder busy.

Sales for the full year will increase by 11% to £2.8 billion while operating profits will jump 6% to just over £1 billion, according to analysts at AJ Bell.

Shareholders will also look to the numbers in Persimmon’s forward order book to shed light on the outlook for the coming months.

Persimmon will announce its half-year results on Wednesday August 17.

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