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LONDON BRIEFING: Persimmon Seeing "Less Urgency" To Buy Pricey Homes

(Alliance News) - Fewer new home sales resulted in a decline in Persimmon's interim revenue and ...

Alliance News 20 August, 2019 | 8:08AM
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(Alliance News) - Fewer new home sales resulted in a decline in Persimmon's interim revenue and profit, the company reported on Tuesday.

In the six months to June, the FTSE 100 housebuilder sold 7,584 new homes, down 6.0% on the previous year, with revenue declining 4.9% to GBP1.75 billion and new home revenue down 5.2% to GBP1.65 billion.

Persimmon said there has been "good" demand across all regions in the UK, though there has been "a little less urgency" from those buying more expensive homes.

The average selling price of a new home was GBP216,942, slightly higher, by 0.5%, than the average price in first half of 2018.

Persimmon's pretax profit declined 1.4% on the previous year to GBP509.3 million with the underlying new house operating profit margin improving to 31.0% from 29.7% year-on-year. However, it has fallen from 31.8% from the second half of 2018.

"Improving the quality and service delivered to our customers remains our top priority, and I am encouraged with the progress made in the first half, which clearly shows Persimmon is changing," said Chief Executive Dave Jenkinson.

"Our customer satisfaction ratings for the current Home Builders Federation survey year are showing improvement, and I am particularly pleased that, in July, Persimmon became the first housebuilder to introduce a retention scheme for customers placing us at the forefront of strengthened consumer rights for homebuyers."

"The improvements to our customer service approach had two main impacts in the period. First, customer service spend increased by 40% year on year and these additional initiatives are anticipated to increase our annual customer care costs by an estimated GBP15 million," he continued.

"Second, and as noted earlier in the year, our decision to invest an additional GBP140 million in work in progress as we held back some sites for later sales release to give customers more accurate moving-in dates reduced the group's overall sales volumes. Allowing for these impacts, Persimmon's trading in the first half of 2019 was strong."

Jenkinson became Persimmon's CEO on a full-time basis in February, following the departure of former CEO Jeff Fairburn in November last year over a row over pay. Jenkinson had been serving as interim CEO since then, having previously served as managing director.

Looking ahead, Persimmon's forward sales are "strong" at GBP2.05 billion, and the company said it is well-positioned for a good second half. However, it warned on rising cost pressures.

"We have continued to experience some pressure with respect to the cost and availability of certain materials in the supply chain as the output from the industry continues to expand. We currently anticipate that cost inflation for the group will be around 4% for the current year. The group remains focused on self-help measures to mitigate these challenges. These include the use of the group's standard house types, utilisation of in-house manufactured brick and our collaborative approach to working with our sub-contractors and suppliers," Chair Roger Devlin said.

Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: up 0.2% at 7,204.37
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Hang Seng: down 0.1% at 26,274.18
Nikkei 225: closed up 0.6% at 20,677.22
DJIA: closed up 249.78 points, 1.0%, at 26,135.79
S&P 500: closed up 1.2% at 2,923.65
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GBP: soft at USD1.2110 (USD1.2139)
EUR: soft at USD1.1077 (USD1.1092)

Gold: down at USD1,497.72 per ounce (USD1,501.04)
Oil (Brent): up at USD59.92 a barrel (USD59.25)

(changes since previous London equities close)
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ECONOMICS AND GENERAL
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Tuesday's Key Economic Events still to come

1100 BST UK CBI Industrial Trends Survey

1100 CEST EU construction output

0745 EDT US Retail Economist/Goldman Sachs weekly Chain Store Sales Index
0855 EDT US Johnson Redbook Retail Sales Index
1630 EDT US API weekly Statistical Bulletin
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UK Prime Minister Boris Johnson has faced fresh calls to ensure there is no return to a hard border on the island of Ireland in the event of a no-deal Brexit. Johnson wrote to EU Council President Donald Tusk on Monday evening outlining his opposition to what he called the "anti-democratic" Northern Ireland backstop. In the letter, Johnson said while he wants the UK to leave the EU with a deal, he could not support any withdrawal agreement that "locks the UK, potentially indefinitely, into an international treaty which will bind us into a customs union and which applies large areas of single market legislation in Northern Ireland".
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Johnson makes his debut on the global stage at the G7 summit this weekend, where all eyes will be on his chumminess with US President Donald Trump. The summit in France opens on Saturday, the one-month anniversary of the gaffe-prone Brexit cheerleader and former foreign secretary becoming premier. His meeting with Trump will be one of the highlights to watch for at the August 24-26 summit in the glitzy resort of Biarritz on France's southwest coast.
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The White House is considering cutting taxes or reversing tariffs to head off a recession, US media reported on Monday, despite President Donald Trump's insistence the economy was in rude health. Senior White House officials are mulling several moves to stimulate the economy including temporarily cutting the payroll tax to increase workers' monthly take-home pay, The Washington Post reported. Also under consideration is reversing new tariffs the Trump administration imposed on Chinese goods, according to The New York Times. The discussion is still in the early stages, and officials have not brought up the idea with Trump, who would have to seek approval from Congress, the newspapers said.
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Italy's 14-month populist government looks set to finally collapse Tuesday after months of infighting and gridlock, paving the way for "unpredictable" outcomes. Prime Minister Giuseppe Conte is due to speak at the Senate at 3 pm local time, two weeks after his deputy Matteo Salvini unexpectedly said he wanted to bring down the government. Conte is likely to defend his record and shoot back at Salvini, and then face a confidence vote or spontaneously tender his resignation to President Sergio Mattarella.
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Hong Kong's leader has said she is setting up a "communication platform" to resolve differences in the city after months of anti-government protests. Chief Executive Carrie Lam also said a fact-finding study would look at the causes of the protests and the police response to them. The movement held a massive but peaceful rally on Sunday after earlier protests had been marked by violence. Meanwhile, Twitter said it has suspended more than 200,000 accounts it believes were part of a Chinese government influence campaign targeting the protest movement in Hong Kong. The company also said it will ban ads from state-backed media companies, expanding a prohibition it first applied in 2017 to two Russian entities.
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BROKER RATING CHANGES
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BARCLAYS CUTS ROYAL DUTCH SHELL TO 'EQUAL WEIGHT' (OVERWEIGHT)
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GOLDMAN RAISES GLENCORE TO 'NEUTRAL' (SELL) - PRICE TARGET 220 (230) PENCE
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GOLDMAN RAISES ANTOFAGASTA TO 'NEUTRAL' ('SELL') - TARGET 850 (800) PENCE
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UBS RAISES ADMIRAL GROUP TO 'NEUTRAL' ('SELL') - TARGET 2075 (2000) PENCE
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RBC CUTS RENTOKIL TO 'SECTOR PERFORM' ('OUTPERFORM') - TARGET 470 (410) PENCE
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COMPANIES - FTSE 100
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BHP Group reported an improvement in performance in its most recently ended financial year, but results were mostly below what the market had expected. For the 12 months to June, the mining giant's pretax profit rose 2.0% to USD15.05 billion the prior year, while underlying earnings before interest, tax, depreciation, and amortisation were broadly flat year-on-year at USD23.16 billion compared to USD23.18 billion. The underlying Ebitda figure fell short of the USD23.71 billion expected by analysts. BHP's annual revenue from continuing operations was USD44.29 billion, up 2.7% from a year earlier, but again below consensus of USD44.74 billion. BHP is paying a "record" final dividend of 78 US cents a share, 25 cents above its policy of paying 50% of underlying attributable profit. The total dividend for BHP's financial year was 133 cents, 13% higher than the 118 cents paid out a year earlier. However, it is below analyst consensus of a 236 cents return, with the market having expected BHP to double the annual payout.
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AstraZeneca reported positive results from the third phase of DAPA-HF trial. The drugmaker said the study showed Farxiga met the primary composite endpoint with a reduction of cardiovascular death or the worsening of heart failure, compared to placebo. Farxiga is an oral once-daily SGLT2 inhibitor, indicated as both monotherapy and as part of combination therapy, to improve glycaemic control, with the additional benefits of weight loss and blood-pressure reduction.
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COMPANIES - FTSE 250
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John Wood Group has sold its nuclear business to a subsidiary of US firm Jacobs Engineering Group for GBP250 million in cash, representing a multiple of 12.4 times 2018 earnings before interest tax deprecation and amortisation. The company said the sale proceeds will be used to cut debt. For the half year to June 30, revenue for John Wood Group was down 2.6% to USD4.79 billion from USD4.92 billion the year before. Pretax profit came in at USD13 million - which included exceptional costs of USD47 million related to cost synergy delivery, investigation support costs and loss on disposal of Terra Nova Technologies in May - swinging from a loss of USD52 million. John Wood reported adjusted earnings before interest depreciation tax and amortisation of USD314.0 million, up 7.2% from USD293.0 million a year before. John Wood lifted its interim dividend 1% to 11.4 cents.
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COMPANIES - INTERNATIONAL
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Sony Interactive Entertainment announced a deal to buy Insomniac Games, the studio behind hot-selling "Spider-Man" and "Ratchet & Clank" video games. The company did not disclose financial terms of the acquisition that will add Insomniac to its stable of studios making games exclusively for the Japanese consumer electronics giant's PlayStation consoles.
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Apple has committed more than USD6.00 billion for original television and film content to be featured on its new streaming service, the Financial Times reported. Apple's TV+ service, aimed at rivalling Netflix and Walt Disney, is set to launch within the next two months but pricing and subscription details are yet to be revealed. Tim Cook, Apple's chief executive, is looking to bolster the company's digital media presence and lessening its dependence on the iPhone product. Apple hopes to achieve USD50.0 billion in services revenue by 2020, the FT said.
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American tech giants Amazon.com, Facebook and Alphabet's Google joined forces to decry the French digital tax as retroactive and discriminatory. US President Donald Trump is considering retaliating against the tax – approved July 11 – with punitive tariffs on French wine imports, prompting an investigation by the Office of the US Trade Representative. The so-called GAFA companies appeared at a USTR hearing on possible countermeasures and were unanimous in their complaints, calling the tax a "troubling precedent". The tax, which Washington considers unfair, adds yet another bone of contention to the transatlantic trade disputes that now also include steel, aluminum, automobiles, aircraft and agriculture. The proposed 3% tax on total annual revenue of companies that provide services to French consumers applies only to the largest tech companies, which are mostly US-based.
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Huawei dismissed Washington's three-month delay to a ban on US firms selling to the Chinese tech giant and said the decision would not change the fact it had been "treated unjustly". The US Commerce Department effectively suspended for a second time tough rules stopping the sale of components and services to the telecoms titan and a prohibition on buying equipment from it. However, it also said it would add 46 more companies to its list of Huawei subsidiaries and affiliates that would be covered by the ban if it is implemented in full – taking the total on the list to more than 100.
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Tuesday's Shareholder Meetings

Local Shopping REIT (re tender offer)
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By Tom Waite; thomaslwaite@alliancenews.com

London Briefing is available to subscribers as an email newsletter. Contact info@alliancenews.com

Copyright 2019 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
Rating
Glencore PLC 261.35 GBX 3.48
Persimmon PLC 2,086.15 GBX 2.82 -
Rentokil Initial PLC 435.90 GBX -1.58 -
Antofagasta PLC 948.80 GBX 5.07 -
Royal Dutch Shell PLC B 2,279.50 GBX -0.15
Royal Dutch Shell PLC Class A 25.73 EUR 0.80 -
Admiral Group PLC 2,125.00 GBX 0.57

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