Persimmon (LSE: PSN) shares are up 48% over the past 12 months, which in any normal year would be a great performance. But that isn’t quite enough to get the Persimmon share price back to its pre-pandemic level. Still, since mid-February 2020, just before the crash, we’re looking at a fall of only 2%.
I was hoping that once lockdowns were starting to lift, we might see some resurgence in demand. Judging by Persimmon’s trading update released Wednesday, that does appear to be happening. Chief executive Dean Finch opened with: “Persimmon has made a strong start to the year with current forward sales 23% ahead of last year and 11% ahead of the same point in 2019.” So that’s not just an increase on last year’s suppressed demand, but better than 2019’s healthy figure too. It didn’t do much for the Persimmon share price on the day, mind, with a gain of less than 1% by the time of writing.
Those forward sales (including year-to-date completions) amount to approximately £3bn, at an average selling price of approximately £252,000 (up from 2020’s £244,500). If this latest is anything to go by, I’m still not seeing any sign of any feared housing bear market.
Persimmon share price history
There is still a risk that we could be in for at least a prolonged softening, though. There’s another possible downside on my mind too. Housebuilder shares can have a tendency to be cyclical, and Persimmon has been no stranger to that over the decades. The Persimmon share price hit a peak around 2007, and then went on to crash heavily. After a few years going nowhere, it started climbing again and is now well above that 2007 high.
By contrast, Taylor Wimpey also hit a peak around the same time and also fell back again. But the Taylor Wimpey share price did not go on to the same kind of renewed bull run. How am I dealing with this history? I’m doing my best to ignore the share price chart, and just evaluate Persimmon on its fundamentals.
Liquidity is key
I’m looking for evidence of cash flow to keep my dividends coming, a good liquidity position, and a reasonable Persimmon share price valuation. On cash and liquidity, Persimmon looks fine right now. The firm had £940m cash at 23 April, and an undrawn £300m credit facility. I think dividend prospects look fine for now. But if earnings growth doesn’t resume quickly enough, Persimmon’s lofty aims might not be met and we could face a risk of a dividend cut.
There’s one other thing draws me to housebuilders. Times of market weakness are not 100% bad for them. No, when demand is lower, land prices tend to be lower too. And I look for canny companies building up their land banks when prices are favourable. Persimmon did that last time we faced a slowdown. It’s what first drew me to the company, making the Persimmon share price look attractive at the time. This time, Persimmon said: “We have continued to take advantage of good quality selective land investment opportunities during the period resulting in net land spend of £140m.” That’s another 6,000 plots tucked away, to help fund my future dividends.