Slump in confidence hits Persimmon

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The Independent Online

Shares in Persimmon, the UK's biggest homebuilder, fell after the company revealed a 14 per cent slump in forward sales yesterday.

Persimmon said that lower consumer confidence and a squeeze in the credit markets had hurt its business in the crucial autumn trading period, pulling the number of legal completions down to 15,905, a reduction of 5 per cent against the comparable figure of 16,701 for 2006.

Forward sales into 2008 were also depressed by the pressure of market uncertainty, dropping from £701m in December 2006 to £603m last year. Persimmon stock, which has lost 20 per cent since the start of 2008, fell to 612p, down 6 per cent or 39.5p, in the early part of yesterday. By the close, the share price had recovered to 645 p, still down 6.5p.

Its chief executive Mike Farley said that while the company remained on track to deliver an increase in pre-tax profits, the Northern Rock crisis had put a strain on sales in the last quarter of 2007.

"First, consumer confidence fell because of the scenes of people queuing around the block to get their deposits," he said, "And, second, as a result of the credit crunch, lenders reviewed their mortgage criteria. Some of property buyers who had won an agreement for a loan in principle could not meet the new criteria, and we lost those orders."

"I don't foresee a further tightening of the lending criteria for now. Also, the forecast interest rate reductions should help affordability and we should be able to attract customers. A lot of the attention has been focused on a crash in the market – we track the number of visitors to our sites and they were only down 15 per cent. It is a drop compared to 2006, but it is not a massive drop from my point of view," he added.

According to Mr Farley, tighter credit conditions pushed the number of customer cancellations to almost a third in the final quarter of 2007, up from the usual rate of around 20 per cent.

Yesterday's update prompted Dresdner Kleinwort analyst Alistair Stewart to slash his earnings per share estimates, slicing them by 41 per cent for 2008 and 61 per cent for 2009. Dresdner also downgraded the Persimmon stock, from Hold to Reduce, signifying an expectation of a 5-10 per cent decrease in the share price over the next 12 months.

"Our forecast changes for 2008 and 2009 are preliminary and, frankly, a stab in the dark since it is too early to predict the outcome of the housing market in 2008. Suffice to say, we believe it could be very, very bad," he said.

Mr Stewart also cut his target price for the stock, from 1,169p to 605p, in response to what he characterised as a "rapidly deteriorating housing market".

Persimmon was the first to update the market this week. Redrow is scheduled to make an announcement today while Bovis, another housebuilder, is expected to issue a statement tomorrow.