Persimmon chief's 75m pound bonus 'almost unfathomable'
Comment of the Day

March 13 2018

Commentary by Eoin Treacy

Persimmon chief's 75m pound bonus 'almost unfathomable'

This article by Rob Davies for The Guardian may be of interest to subscribers. Here is a section:

In an evidence session held by the housing committee on Monday, the Labour MP Helen Hayes asked Raab if he was comfortable with the “positive effect” that help to buy had had on housebuilders’ profits and executive bonuses. “It’s almost unfathomable,” said Raab. “No I’m not comfortable with it.

“That’s why the government has introduced measures on corporate governance and is encouraging shareholders to take a greater grip on it. We want to see shareholders take a stronger grip on it and we’re starting to see more shareholder activism.”

Hayes asked if the government was monitoring the effect that help to buy was having on corporate profits. “I’m not sure how we would measure a hydraulic relationship between those three points,” Raab said. He added that “other parts of government” were looking at corporate pay.

Help to buy is designed to spur the construction of new homes by giving aspiring homeowners an interest-free government loan worth up to 20% of a property’s value – if the buyer opts for new build. According to several reports, housebuilders have simply increased the price of homes in response, driving up prices and boosting their own profits.

Eoin Treacy's view

UK homebuilders initially collapsed following the Brexit vote but were among the first to rally as the full ramifications of the collapse of the Pound filtered through into nominal asset prices. Help-to-buy programs also represented significant tailwinds for the sector, however increases to stamp duty have had negative effects and not least in London where prices are now falling against a background where the Pound has strengthened considerably from its 2016 lows.

Persimmon has a low estimated P/E of 9.69 following impressive earnings growth over the last few years and it dividend has swollen to 9.81% based on the last 12-months or 6.95% on the expected payout this year. The share hit a medium-term peak in October near 2900p and has posted two lower highs since. It is now testing the region of the trend mean and will need to hold the 2500p level if potential for additional upside is to given the benefit of the doubt.

Barratt Developments has already broken downwards while Bovis Homes posted a downside key reversal from the psychological 1200p level yesterday and followed through on the downside today.

These charts suggest the best of the UK homebuilders’ rallies might be behind them.

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