UK homebuilder Persimmon flags cost concerns driving shares lower

This content was published on November 6, 2024 - 16:04

2 minutes

By Aby Jose Koilparambil

(Reuters) -British homebuilder Persimmon flagged concerns about higher costs emerging in price negotiations for 2025, sending its shares sharply lower.

The FTSE 100-listed builder’s stock fell by as much as 8% to a more than four-month low of 1,352 pence, underperforming the wider sector, which was down 3% by 1414 GMT.

The prospect of rising costs that could offset an improvement in sales across the British building sector is underscored by expectations rising inflation, spurred by the UK government’s October budget, will lead the Bank of England (BoE) to delay interest rate cuts.

The BoE is due to announce its rate decision on Thursday.

CFO Andrew Duxbury told analysts in a call the company expects costs from a hike in national insurance to be about five million pounds, and projected an additional hit of 10 million pounds through the supply chain system for the 12-month period from April next year, when the changes take effect.

Barclays analysts said in a note that the signs of return to cost inflation suggest margin risk.

In her first budget since the Labour government took office, British finance minister Rachel Reeves raised employers’ social security contributions by 1.2 percentage points to 15% from April to raise revenue. Some companies have said it could hinder economic growth due to elevated payroll costs.

Persimmon said net private sales rate per outlet rose 37% year-on-year since the start of the second-half period on July 1.

The company, which offers homes from studio apartments to five-bedroom houses, said its private forward sales position since July 1 jumped 40% to 1.45 billion pounds ($1.87 billion).

Last month, another homebuilder Vistry also flagged cost concerns. It cut its annual profit forecast after discovering that one of its divisions had understated the cost of some of its developments.

($1 = 0.7770 pounds)

(Reporting by Aby Jose Koilparambil in Bengaluru; Editing by Varun H K and Barbara Lewis)