Annual house price inflation turns negative – Nationwide | PSN, INL, PURP

Company research

Persimmon (PSN, 1,453p, £4,638m mkt cap)

UK number three housebuilder by volume, top by market cap. FY (Dec) results. Completions +2%, 14,868; prices +5%, £249k; rev +7%, £3,696m; op margin (new housing), 27.2% (FY 21, 28.0%); u-lying PBT +4%, £1,012m; stat PBT, £731m, after £275m building safety provision and £7m goodwill impairment (£967m); u-lying EPS -0.6%, 247p; dividend, excluding capital returns, 60p; net cash, £862m (£1,247m); tangible net assets, £3,439m (£3,450m). Current trading: Sales rates have improved to 0.52 per site per week in the first eight weeks of 2023, below the equivalent period last year (0.96) but up from the 0.30 in Q4 22 and 0.19 in the seven weeks after then mini-budget. Headline selling prices have “remained firm and cancellation rates have returned to typical historical norms”. Sales incentives costs have increased slightly to around 3% of gross sales price (c. 5% in South; minimal elsewhere) from 2.4% in the fourth quarter of last year. Part Exchange accounted for around 25% of sales in the first eight weeks of the year (2021 c. 6%). Current private forward sales -55%, 2,812 units. HBF 5-star customer satisfaction rating for the first time in group’s history and on course to retain it for second year.

Outlook: No firm guidance but continuing to steer expectations to around 8,000 – 9,000 completions for FY 23. A wide range of margin scenarios [on what had been industry-leading levels], based on varying price and cost assumptions, to a reduction of 500 – 1300 bps. A FY dividend of at least the final dividend of 60p to be paid, including an interim payout for FY 23. Net cash to fall, but remain strong. “Our existing land portfolio gives us a strong platform to build from and again we will invest in it further in a disciplined manner. While our margin will be impacted by the contraction in volumes this year, it will grow as we increase completions in the years ahead. We will expand our outlet network at the right time and enhance our capabilities to respond quickly and efficiently to any increase in market demand”.

Inland Homes (INL, 10.1p, £23m)

Leading brownfield developer, housebuilders and partnership housing group, focused on South and South East. Board changes. “Simon Bennett, Chairman and the Group’s other non-executive directors Carol Duncumb and Brian Johnson have resigned from their respective roles at the Company with immediate effect. The Company has become aware of certain related party issues (which may or may not fall to be treated as related party transactions under the AIM Rules) of which the Board was not informed at the relevant times”. The company is collating relevant details, following which a further announcement will be made. Whilst Simon Bennett has resigned as Chairman, in order that the company can meet the minimum of two directors prescribed under the company’s articles, he has agreed to remain in place for a maximum period of two weeks whilst the company formalises an additional appointment or appointments. As a consequence, Simon Bennett’s resignation will become effective on the appointment of another director at the close of business on 14 March 2023 whichever is the earlier. “If such additional appointment takes more than two weeks to conclude, the Board would be constituted by a single director, which would be below the minimum prescribed under the Company’s Articles and would, in such circumstances, lead to a suspension of the Company’s shares. The Company considers this to be an unlikely scenario. The Board is pleased to confirm its intention to re-appoint one of the original founders and former CEO, Stephen Wicks to the Board as soon as possible following due diligence checks, as to which a further announcement will be made in due course.  Further appointments will be made to the Board in due course”.

Purplebricks Group (PURP, 8p, £23m)

Hybrid on-line estate agent, supported by local property agents (LPAs). Launch of Formal Sale Process under the Takeover Code. Since the announcement on 17 February of a strategic review, the group has received “several credible expressions of interest that the Board wish to pursue in a coordinated fashion, alongside engaging with a wider range of potentially interested parties, in relation to a potential acquisition of the Company or some or all of the Group’s business and assets. In order to fully explore the option of the potential sale of the Group, and to enable that process to establish whether there is a bidder prepared to offer a value that the Board considers attractive relative to the prospects of Purplebricks as a standalone listed company, the Strategic Review will include a “formal sale process”. The Formal Sale Process will enable the Board and its advisers to conduct an orderly process and engage more widely with potentially interested parties, with a view to maximising the outcome for Purplebricks’ shareholders. It remains possible that, following completion of the Formal Sale Process, the Board will consider that Purplebricks and its shareholders would be best served by alternative strategic options available to the Company, including by Purplebricks remaining a listed company. The Company is not currently in receipt of an approach from any potential offeror at the date of this announcement”.

Economic data

House prices fell by 0.5% on a seasonally-adjusted basis to £257,406 between January and February, bringing the annualised rate from +1.1% to -1.1%, the first annual decline since June 2020, according to the Nationwide. House prices are now down 1.1% year-on-year in February – the first annual decline since June 2020 and the weakest since November .

Viewpoint: Although the move into the red on an annualised basis has captured the headlines, the more relevant metric is arguably the M/M changes (below): February’s move is lower than three others since the mini-Budget. Larger falls in October and November (-1.0% and -1.3%) may have been the result of some prices being renegotiated in the final stages of ongoing transactions disrupted by the initial chaos in the mortgage markets; the latest two months, now reflecting mainly new buying processes involve smaller (and dwindling) declines. This moderate softening could last for a few months as a sellers’ market morphs gradually into a buyers’ one. But, as Persimmon contended today, there are still buyers out there.