Today we have another set of results from a house builder, Persimmon (PSN), which as you would expect are very strong. No surprises here on the dividend as they made their second payment of £214m (70p per share), paid 4 July 2014, of surplus capital under the Capital Return Plan. This is a Berkeley Group (BKG) style plan to return surplus capital that they generate to shareholders over the next ten years. By way of reminder they describe this plan as follows:
"Our long term strategy is to deliver superior shareholder value through the housing cycle. This value will be delivered by growing the Group to optimal scale as markets develop and requires disciplined, well-judged capital deployment through the cycle. Management has given a long term commitment to shareholders that they will receive capital that is considered as surplus to the needs of the reinvestment requirements of the business through the cycle. This commitment is to return £6.20 per share, or £1.9 billion of capital, to shareholders over a ten year period to June 2021."
The first two payments of surplus capital totalling £1.45 per share, or £442 million, were made on 28 June 2013 and on 4 July this year. The third scheduled payment is 95 pence per share, or c. £290 million, in July 2015. This will be finalised and announced with the 2014 Full Year results of the Group scheduled for Tuesday 24 February 2015.
I'll not dwell on the results as they show lots of strong numbers which you can read in full at the link above if that is of interest to you. However I would highlight that the revenues were up by 33% to £1.2bn which compares to full year revenue growth forecasts of 18.4% (Source: Stockopedia). They also reported earnings per share of around 54 pence versus 34 pence at the same stage last year which in the event were around 42% of the full year earnings. If roughly the same h1 / h2 split is achieved this year then they could perhaps achieve closer to 128 pence of earnings against current forecasts of 111.8 pence which suggests some scope for upgrades on the back of these numbers. This is especially so as they say that current forward sales are up by 22% and that reservation in the traditionally quieter summer months since 1 July are running 9% ahead of last year.
Summary & Conclusion
Another strong set of numbers from Persimmon with further progress on their plans to return surplus capital to shareholders over the next few years. With next years payment of 95 pence this gives a yield of 7.1% at last nights closing price of 1335 pence. Meanwhile current trading looks strong and this leaves them well place to probably beat current forecasts which put it on 12x for this year, but this may turn out to be closer to 10x if they do see some upgrades and they are on just under 10x next years current forecast earnings. This one, like Bovis yesterday, also looks to have gone through a period of consolidation which it may also be breaking out from, but resistance from peaks earlier in the year is not far away at between 1400 and 1500 pence, so a strong hold for me for now. If you are not in it and are prepared to buy into the house builders then this seems like a good way to play it, but given the lumpy nature and timing of the dividend there may be better opportunities to get in along the way before the next payment is due.
Finally today I have for you an in line 6 month trading update from Imperial Tobacco (IMT) which they headlined as continued strategic progress and unchanged full year outlook. So steady as she goes with limited growth from their mature markets, but they claim their growth brands outperformed the market while specialist brands also did well. Their growth markets saw better growth of 8%. The main story going forward will be the integration of the US acquisition announced last month, the cost of which means they have suspended their share buy back programme.
This leaves them on around 12x with a 5% yield based off of the 10% dividend growth for this year which they have reiterated in these numbers. So OK in a dull way although the balance sheet is more geared than I would like, but I can just about live with it given the strong and predictable cash flows they generate - still beats cash in the bank if you are prepared to take the risk.