Is Countryside Properties plc a better buy than Persimmon plc?

In the days following the news of the UK’s vote on EU membership at the end of June, property stocks took as hammering as investors fled the sector. However, after nearly four months the data seems to suggest that the industry has, as of yet, suffered no ill effects from Brexit. There has been some talk of a slowdown in house price growth over the past few months, yet the demand for houses remains robust. It’s likely that this will be the case for some time as the UK is grappling with a chronic shortage of new houses and builders are struggling to meet demand. 

Prices still rising 

Countryside Properties (LSE: CSP) is just one of the UK’s homebuilders struggling to keep up with demand. 

Shares in Countryside are rising today after it announced a record performance for the year to September 30. Specifically, during the reported period the firm’s average selling price rose to £466,000 per home, up from £385,000 last year. Total completions rose 12% year-on-year to 2,657 units and the company ended the year with a record private forward order book of £225.4m, up 64% year-on-year.

Further, at the end of September Countryside carried £12m of net cash on its books, an improvement of £71.5m from the net debt position of £59.5m reported at the same time last year. 

Compared to peers such as Persimmon (LSE: PSN), Countryside is a premium property company that targets the higher end of the market. This has both drawbacks and advantages. During its last financial year, the group’s private housebuilding arm saw total completions rise 28% to 703, with average selling prices up 14% to £667,000 thanks to soaring prices in London commuter markets. Average selling prices were pulled down by the public sector partnerships division but the average selling price in this unit stil rose by a sharp 27% to £307,000. 

High-end home sales are usually the first to come under pressure in any property slowdown, but Countryside’s partnership work should keep the company chugging along through any market turbulence. Management sees plenty of opportunity in this market and is eyeing major potential to work in partnership with local authorities and housing associations.

Exposure to London could be damaging 

Unfortunately, City analysts are worried about Countryside’s exposure to the London property market and therefore prefer Persimmon. For example, analysts at JP Morgan told clients last month that in comparison to Countryside, Persimmon has “little exposure to London” with a long land bank “to run down” meaning the firm’s dividend is safe “in almost any scenario.” Shares in Persimmon currently support a dividend yield of 6.3%, above the market average and extremely attractive in today’s low-interest rate world.

As of yet, Countryside doesn’t offer shareholders a dividend payout, but dividends aside, JP Morgan’s analysis raises an interesting point that housebuilders with little exposure to London are more insulated from any market slowdown than those with a London focus. For this reason, and after taking into account the dividend argument above, I believe Persimmon is a better investment than Countryside.