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OUTLOOK Persimmon set to announce land write-downs, possible dividend cut
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LONDON (Thomson Financial) - Persimmon Plc will kick-off what is likely to be another gloomy week for the house building sector on Tuesday with a first half trading statement. Some analysts are predicting a 200 million to 300 million pounds write-down on its land bank and a possible dividend cut.
Stockbrokers Panmure Gordon believes that while any write-offs will be lower than the 660 million pounds reported by Taylor Wimpey Plc last week, Persimmon will ultimately have to write down its land bank and work in progress by between 200 million and 300 million pounds in the next six months and by a similar amount in 2009.
Given the sharp deterioration in home sales and volumes levels, the broker is also forecasting a cut in the total dividend from 51.2 pence to 20.0 pence a share for 2008.
Last week, the broker pulled back its earnings forecasts for the company from 74.1 pence to 46.0 pence a share and cut its investment recommendation for the stock from a 'buy' to a 'hold' given the gloomy backdrop for the sector. It also slashed its target price for the shares from 595 pence to 250 pence.
'We believe trading conditions in the housing market have deteriorated further since the company last reported with unit sales, completions, like-for-like selling prices and the forward order book all trending down on an underlying basis,' the house said in an investment note.
Persimmon has already warned that sales and volume levels for the early part of 2008 would be lower than last year. Total sales for the period from January 1 through to April 24, 2008, were down by 24 percent 1.37 billion pounds, while volumes were 18 percent lower.
Swiss broker UBS expects house prices to be down by about 5.0-6.0 percent in line with the sector while volumes could now be down by around 50 percent in the current year to date. It believes any write-downs will be modest, although the trading outlook is likely to be negative.
Last week, Panmure Gordon cut its investment recommendations for the whole sector following the dismal trading statement from Taylor Wimpey.
Persimmon is also expected to confirm that it has shed 1,000 jobs - bringing the total number of jobs losses in the sector over the past week to 3,200.
Last week, Barratt Developments Plc announced plans to cut 1,000 of its 6,700-strong workforce, while Taylor Wimpey said it would be axing 900 staff and closing 13 of its 39 regional offices.
'Persimmon is a high quality business run by an excellent management team. But it cannot avoid the current difficulties surrounding the housebuilding industry,' said Panmure Gordon.
Last week Taylor Wimpey gave a stark assessment on prospects for both the UK and U.S. housing markets and revealed that it had failed to agree terms for a 500 million pound refinancing package to shore up its battered balance sheet.
Panmure Gordon believes that while Persimmon is likely to be under less pressure from a financing perspective, it is not ruling out a rights issue or a debt-for-equity swap - or some other funding technique - later in the cycle.
malcolm.locke@thomsonreuters.com
ml/jfr
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