Persimmon's Yield

[OLTB]

Evening everyone.

I'm trying to get my head around Persimmon's yield and can't understand it

According to the latest update, sales are ahead, no debt, all on track with forecasts etc. yet the market is slamming the share price at the moment. I am aware that the current return of capital will finish over the next few years and it's a little foggy to see beyond that....but isn't that the case with any company? Does Mr Market think that Brexit will damage house builders this much - perhaps it does.

I'm a little apprehensive about topping up - does anyone else have such worries?

Cheers, OLTB.

[Arborbridge]

I'm a little apprehensive about topping up - does anyone else have such worries?

Cheers, OLTB.

Well, yes - I do, and I'm as baffled as you are. I came very late to PSN - too late because I am well into the red - and perhaps I'm guilty of jumping in to something I did not understand. What happens after the sequence of returns happens? Will the company still be high yield? I've no idea and I doubt anyone else has, but I am focussing on two things: a) we are short of houses b) persimmon is Britain's biggest housebuilder.

Arb.

[scrumpyjack]

Housebuilding has always been very cyclical and profits can collapse quickly if house prices fall. Many in the market seem to think one should value builders in relation to their net assets, not just their profits. I think PSN's net asset value is about £10 per share..

Fears of a substantial fall in house prices if we crash out with no deal or if there is a Corbyn government are,I think, the cause of the sharp fall in PSN.

Personally I think it is overdone as we do have a long term housing shortage and the barriers to entry in house building are substantial.

[Walrus]

Housebuilding has always been very cyclical and profits can collapse quickly if house prices fall. Many in the market seem to think one should value builders in relation to their net assets, not just their profits. I think PSN's net asset value is about £10 per share..

Fears of a substantial fall in house prices if we crash out with no deal or if there is a Corbyn government are,I think, the cause of the sharp fall in PSN.

Personally I think it is overdone as we do have a long term housing shortage and the barriers to entry in house building are substantial.

Inclined to agree. Appears I got filled yesterday also so Persimmon has joined my HYP party.

[idpickering]

I'm a little apprehensive about topping up - does anyone else have such worries?

Cheers, OLTB.

Well, yes - I do, and I'm as baffled as you are. I came very late to PSN - too late because I am well into the red - and perhaps I'm guilty of jumping in to something I did not understand. What happens after the sequence of returns happens? Will the company still be high yield? I've no idea and I doubt anyone else has, but I am focussing on two things: a) we are short of houses b) persimmon is Britain's biggest housebuilder.

Arb.

I couldn't agree more Arb. I only bought into PSN this April, for all the reasons at the back end of your post. For me it seems that currently all things to do with housing shares are sour. I think the brexit saga isn't helping much, but even that matter will be resolved, for good or bad, at some point. I remind myself to think longer term than recent events, and in short OLTB, I'd have no problem topping up my PSN holdings, and in fact that is my intention for January's dollop of cash.

Ian.

[monabri]

A quote from TMF

"At the end of June, Persimmon had net cash of £1,155m. This works out at about 365p per share. That’s enough to cover this year’s 228p dividend and most of next year’s payout, even if earnings fall to zero."

https://www.fool.co.uk/investing/2018/1 ... hy-id-buy/

[idpickering]

A quote from TMF

"At the end of June, Persimmon had net cash of £1,155m. This works out at about 365p per share. That’s enough to cover this year’s 228p dividend and most of next year’s payout, even if earnings fall to zero."

https://www.fool.co.uk/investing/2018/1 ... hy-id-buy/

Cheers for that monabri. Need I say more than to remind our gang that HYP is a long term game. I’m sure most, if not all hereabouts, know that anyway. If I can pick up a bargain on the way I will.

Ian.

[tjh290633]

All the builders are suffering because Project Fear has raised its ugly head again. They are reacting to something which hasn't happened and may never happen. Just remember that the element of house prices which rises rapidly is the price of land. The bricks and mortar are a lot less volatile, as is the cost of labour.

Were planning restrictions to be abolished, the price of land would fall dramatically. It is high because the use of land is strictly limited.

Factory built houses could reduce the cost of the actual buildings.

At the moment it pays builders to use their land banks carefully, because the value of land keeps rising, and so there is an extra profit incentive.

TJH

[pyad]

Evening everyone.

I'm trying to get my head around Persimmon's yield and can't understand it

According to the latest update, sales are ahead, no debt, all on track with forecasts etc. yet the market is slamming the share price at the moment. I am aware that the current return of capital will finish over the next few years and it's a little foggy to see beyond that....but isn't that the case with any company? Does Mr Market think that Brexit will damage house builders this much - perhaps it does.

I'm a little apprehensive about topping up - does anyone else have such worries?

Cheers, OLTB.

It's quite straightforward

Assuming they deliver on the remainder of the long term "capital return plan", the dividends will be 235p for each of 19 and 20 with the last payment of 110p in 21. So at 1,900p the forward yields for 19 and 20 are 12.4% and 5.8% for 21. No dividends are guaranteed but that is their stated intention.

21 is so far off that is not possible to know what may happen from then and will depend upon their business conditions at the time. Disregard anyone who claims to have an idea and who is thereby ignorant of Strategic Ignorance. Just don't assume the 235p div and the resulting huge yield at the current price will continue from 21.

[Arborbridge]

All the builders are suffering because Project Fear has raised its ugly head again. They are reacting to something which hasn't happened and may never happen.
TJH

At the risk of getting deleted, whilst I agree with most of the sentiment of your post, which is really very sensible, could I appeal to people not to use this sloppy "Project Fear" expression. It's not a project of fear, but an attempt to inject some real calculation into the debate without which we are all entirely ignorant rather than probably ignorant
Of course, the projections might or might not be correct in the end, but because it does not agree with the rather more optimistic wording on the side of a bus, Brexiteers coined that lazy phrase as a PR stunt.
We shouldn't allow such triteness to infect normal rational discussion, because this is to the advantage of neither leaver nor remainer seeking enlightenment.
Language affects the outlook of all of us and should be used carefully.


Arb.

[tjh290633]

ARB, I used the expression as a shorthand for the very biased projections put out by the Treasury and the Bank of England, which implied that house prices are likely to fall by 30%. Obviously this is not the forum to discuss those projections, but they are a proximate cause of the effect on the share prices of housebuilders.

TJH

[Arborbridge]

ARB, I used the expression as a shorthand for the very biased projections put out by the Treasury and the Bank of England, which implied that house prices are likely to fall by 30%. Obviously this is not the forum to discuss those projections, but they are a proximate cause of the effect on the share prices of housebuilders.

TJH

Fair enough, and as I mentioned the drift of your post was very sensible. In my view, adding "Project Fear" as a description is not helpful as it is label adopted by a political sect for PR purposes and clouds any real point being made.

Arb.

[Bouleversee]

I came to the PSN party in May 2002 when the price was around 453p and have had some stonking returns of capital on my 1448 shares as well as excellent growth, even with the recent setback. I think the fall is overdone. Yes, house prices may fall but PSN operates in areas which are still going up and less likely to fall than in London and immediately surrounding areas; yes, the govt. may discontinue Help to Buy but there will always be a shortage of houses; yes, interest rates may go up but so may wages. True, the previous head has been forced out and we don't know whether his successor will be as good but you never know, he might be even better and less greedy; the LTIP payments might reduce. Also, PSN now have their own brick factories and make some other essential commodity (I forget which), so they will not be held back by shortage of materials and might therefore be at an advantage over other builders. I respect a company which cuts back its dividends when profits are lower and dishes out large ones when times are good, unlike Kier who is raising money through a discounted rights issue and then paying a dividend with the money. How mad is that?

With those huge returns planned over the next couple of years out of existing cash (in my ISA so no tax to pay), why on earth would I sell now, pay 2 lots of commission and sdrt to buy something else which would almost certainly pay out less and be no less risky in terms of capital. Nobody can possibly know what things will be like by the time we get to the end of 2020 and I can't see why PSN should fare worse than most; I'm pretty sure it won't go bust but I'll decide what to do when the situation clarifies. Why not hang on for the ride and possibly even top up if you are not already overweight? I might even add a few more myself if the s.p. falls any more though I don't want to tempt providence or lose what has so far been achieved. All this assumes, of course, that there is nothing nasty hidden in the woodwork and that the auditors have been doing their job properly, which it seems is not guaranteed these days.

Just my take; others may see it differently. And yes, Pyad, I am probably on the wrong board since I look for a decent total return rather than an unsustainable high yield but this is where the thread started.

[TheMotorcycleBoy]

Well, yes - I do, and I'm as baffled as you are. I came very late to PSN - too late because I am well into the red - and perhaps I'm guilty of jumping in to something I did not understand. What happens after the sequence of returns happens? Will the company still be high yield? I've no idea and I doubt anyone else has, but I am focussing on two things: a) we are short of houses b) persimmon is Britain's biggest housebuilder.

Arb.

Alas Mel and I joined very late. Probably about 2740p too late, if I recall. We are hanging on, for the reasons you've outlined above, their yield is good, and I guess will remain so even with a div cut. And they are currently cash rich, no bad thing. We won't top this one up, though, trying to find our feet still, with current p/fs, more "understandable" drops.

Matt

[Sacky]

OLTB started this thread with a post that noted "... yet the market is slamming the share price at the moment." To me, it seems a bit frothy but recent history suggests it's hardly a slamming.

I first bought Persimmon in Feb 2008 at 720p because I thought housebuilding wasn't going away, and admit I was seduced by the fact the share price had more halved from a high of 1544p about a year earlier. How much lower could the price go? Well, it then halved again, halved again, and then halved again to a low point of about 180p by the end of 2008. My holding value fell 75% in less than a year, which I admit felt like a slamming but at that time in the financial crisis lots of other things looked even worse.

They then started creeping up, and the flipside is that when confidence returns, shares can double and double again. I topped up in 2010 at 461p and then 365p, and again in June 2012 at 603p. By 2015 they were up in the £20 territory and both the value and income were making up a proportion of my portfolio which I felt uncomfortable with. I generally don't tinker but in this case top-sliced one-third of my PSN holding to bring these levels down, with the profit from the sale greater than the original cost of the shares I retained.

Persimmon is now 5% of my HYP portfolio by value and about 6% by income. I don't plan to sell or buy. Simplistically I think that if you halve interest rates you are likely to double house prices - people can borrow twice as much to spend for the roughly the same monthly cost. If the interest rate cycle has turned and rates are going to hold steady or head up then I find it hard to see where house price growth is going to come from. Every homebuyer wants to buy today unless they think they can buy it cheaper tomorrow, then none of them want to buy today which makes building firms vulnerable.

To sum up, I think Persimmon-type experiences tell you a lot about the stock market and yourself as an investor. Although I'm happy to hold I don't have any special confidence in the current Persimmon price being maintained on the argument basis that the country has a perceived shortage of homes. I wouldn't be surprised if in a year or two they are at half today's levels (and I'm considering buying again).

[scrumpyjack]

Similarly my average cost is 422p per share and I’ve had a lot more than that back in dividends already.

When I bought I took the view at that point that as long as house prices were well north of build costs (excluding land), and as long as the company was going to survive the financial crisis, builders were a screaming buy. Their loss making at that point was down to having bought land at higher prices earlier and until that land stock had worked its way through to sales, they would report losses. Oil and Pharma cos would have excluded the excess cost of land from their ‘adjusted’ profits!

Thereafter they would return to profit as new land bought at cheaper prices fed into the P&L. They would become healthily profitable. So I bought Barratt and Persimmon and have huge profits as a result.

It is possible we could enter that cycle again. If house prices fall sharply then profits will fall much more so because of the cost of their existing land bank. But fundamentally it is a good business which will survive through the cycle. With net immigration of 300,000 a year on top of the existing housing shortage, it’s a pretty safe business to be in. Bumpy but overall worth it!

[Arborbridge]

Similarly my average cost is 422p per share and I’ve had a lot more than that back in dividends already.

When I bought I took the view at that point that as long as house prices were well north of build costs (excluding land), and as long as the company was going to survive the financial crisis, builders were a screaming buy. Their loss making at that point was down to having bought land at higher prices earlier and until that land stock had worked its way through to sales, they would report losses. Oil and Pharma cos would have excluded the excess cost of land from their ‘adjusted’ profits!

Thereafter they would return to profit as new land bought at cheaper prices fed into the P&L. They would become healthily profitable. So I bought Barratt and Persimmon and have huge profits as a result.

It is possible we could enter that cycle again. If house prices fall sharply then profits will fall much more so because of the cost of their existing land bank. But fundamentally it is a good business which will survive through the cycle. With net immigration of 300,000 a year on top of the existing housing shortage, it’s a pretty safe business to be in. Bumpy but overall worth it!

What concerns me is not whether the share price cycles in this way, but whether the dividends continue flowing throughout. I don't have a feel for whether the would or not, but if they are not likely to, then this isn't a good HYP investment - especially for those of us living on the income in retirement.

Arb.

[Sacky]

I don't think you'd call Persimmon a consistent dividend payer although I'm happy with the overall amount.

These are tax years, amount I've received per share:

2008-9.....37.7p
2009-10....0p
20010-11...3p
2011-12....8.5p
2012-13....6p
2013-14....75p
2014-15....165p
2015-16...110p
2016-17...25p
2017-18...235p
2018-19...110p

[Arborbridge]

I don't think you'd call Persimmon a consistent dividend payer although I'm happy with the overall amount.

These are tax years, amount I've received per share:

2008-9.....37.7p
2009-10....0p
20010-11...3p
2011-12....8.5p
2012-13....6p
2013-14....75p
2014-15....165p
2015-16...110p
2016-17...25p
2017-18...235p
2018-19...110p

Anything but! Thanks Sacky.

[TheMotorcycleBoy]

Being a newbie, I'm curious about this concept....i.e. falling stock prices....is it possible that PSN due to the unpopularity of JF get "short-sold" more than other stocks?

Does short-selling happen that much?