Persimmon: Bricks and Margin

Persimmon’s integrated supply chain, which owns brick, tile and timber operations, helps dampen input-cost volatility and preserve margin in a rate-sensitive market where affordability is tight. H1 2025 reported an underlying operating margin at 13.1% (up 10 bps) alongside 4% higher completions and 8% higher average selling price, showing cost discipline without over-reliance on incentives. For a cyclical builder, these marginal gains matter when mortgage costs swing demand.

In the recent report, forward sales into early August show total value up 9% year over year, with private up 11% and housing association up 4%, supporting H2 delivery and cash conversion. Management is targeting 11,000–11,500 2025 completions and an improved underlying operating margin versus 2024, anchoring investor visibility while keeping capital discipline intact. In a market where volumes can wobble, contracted orders reduce guesswork.

Persimmon’s core is an affordable, standardised product, where UK structural undersupply, planning reforms, and social/affordable partnerships can translate to steadier outlet traffic and site turn. Full‑year 2024 saw completions and outlets rise, with 2025 targeted for further volume and return improvement; H1 2025 continued the trend with stronger selling prices and a larger forward book. This alignment with affordability and policy support is strategically relevant.

• H2 trading updates: Expect brief updates on weekly reservation rates, the level of buyer incentives, and how build costs are trending as autumn selling ramps up; these are the quickest read on whether H1’s steady margins can hold when mortgage approvals and sentiment wobble with rate headlines. If reservations stay healthy without heavier incentives, it supports the full‑year margin improvement signal and keeps cash conversion on track into year‑end.

• Site openings and outlet momentum: Watch for commentary on new outlets opened and the sales intensity per outlet; this shows whether Persimmon is turning the stronger forward order book into actual completions rather than just pipeline. Higher active outlets and solid sales per site underpin the 11,000–11,500 completion ambition and reduce reliance on late‑period incentives to meet volume goals.

• Full‑year 2025 results: The check‑in point for whether management delivered 11,000–11,500 completions, nudged underlying operating margin above last year, and advanced ROCE; it’s the proof that self‑supply, standardisation, and disciplined incentives can scale earnings, not just volumes. Confirmation strengthens confidence in the operating model and supports consistent dividends and potential balance‑sheet rebuilding.

• Planning/policy follow‑through: Look for evidence that planning decisions are coming faster and that partnerships on affordable and housing‑association plots are moving from talk to contracts. Smoother consents and repeatable, affordable deals sustain outlet growth and shorten cash cycles, while delays can trap working capital and push volumes to the lower end of guidance.

• Margin ambition trajectory: Management’s medium‑term goal is to lift underlying operating margin and ROCE toward more attractive levels by leaning on in‑house materials, design standardisation, and cost discipline. Why it matters: consistent margin expansion through the cycle supports higher through‑cycle returns and protects earnings when rates are less friendly, a core differentiator for a volume builder.

• Land discipline and capital returns: Over time, steady land turnover and stronger cash generation reopen options for enhanced distributions without weakening the balance sheet. A repeatable pattern of buy‑land‑build‑sell‑recycle cash gives investors clearer visibility on ordinary dividends and potential extras when the cash pile rebuilds after growth phases.

Mortgage affordability remains the swing factor: a renewed spike in rates or slower cuts could stall reservations, push incentives up, and pressure margins. Although H1 2025 held margins and raised average selling price, that resilience can fade if credit costs re-tighten. Forward sales mitigate near-term risk but do not eliminate macro sensitivity.

UK planning remains uneven in pace and predictability; delays can constrain site openings, raise overhead absorption, and slow outlet growth that underpins volume targets. Management notes supportive reform direction, but execution is local and variable, affecting land turns and build cadence. Good forward orders help, but delays still dent throughput.

Net cash decreased in mid‑year 2025 versus prior periods as land and work‑in‑progress absorbed funds, limiting optionality for buybacks or special returns. The model remains disciplined, but if cash conversion lags while building scales up, the flexibility to offset shocks narrows. Regular dividends continue, yet balance sheet trends warrant monitoring.