SHARES in Persimmon closed down nearly 4% as it warned conditions in the housebuilding market will continue to “remain subdued” throughout 2024, despite recent signs of recovery.

The housebuilder cited the “sharp rise” in mortgage rates in autumn 2022, which followed former Prime Minister Liz Truss’s disastrous mini-Budget, and the “general climate of economic uncertainty” as pre-tax profits tumbled by more than 50% to £351.8 million last year.

Revenue fell to nearly £2.8 billion from £3.8bn as Persimmon felt the impact of rising mortgage costs, with home completions dropping to 9,922 from 14,868, ahead of expectations.

The company warned the outlook for the near-term “remains uncertain” however it emphasised that there continues to be “significant pent-up demand” for new homes.

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While Persimmon noted that competition in the mortgage market and wage growth have improved mortgage affordability in the current year, it warned that affordability “continues to be constrained, particularly for first-time buyers, and demand for homes remains varied across the country”.

The Bank of England base rate has remained at 5.25% since August last year, having been steadily increased by the Monetary Policy Committee from 0.1% in December 2021 in a bid to combat surging inflation.

It is broadly accepted that the recent cycle of rate rises has come to an end, with the most recent House Price Index published by Nationwide earlier this month stating that affordability pressures have eased after borrowing costs dropped around the turn of the year.

But the outlook for the market continues to be beset by uncertainty. Shares in Persimmon reflected that uncertainty, dropping by 4% despite the company signalling a rise in completions to between 10,000 and 10,500 in 2024.

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Russ Mould, investment director at stockbroker AJ Bell, said: “Persimmon’s full-year results for 2023 offer no additional bad news and the guidance for 2024 even offers a glimmer of hope, as chief executive Dean Finch points toward a modest increase in completions, but the share price is not taking much notice.

“This may be due to uncertainty over when the Bank of England will get around to cutting interest rates in 2024 and the weak trajectory of the UK economy, but another reason may be valuation, as the shares do not look particularly cheap when set against the benchmark provided by Barratt’s all-stock offer for Redrow.”

Oli Creasey, property research analyst at investment management firm Quilter Cheviot, said while Persimmon’s results showed 2023 was a “tough year” for the company, as had been expected, a “greater concern for shareholders is that the outlook for 2024 isn’t really any better”.

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He said: “Current sales volumes year-to-date are going through at approximately the same rate as 2023, and management expect overall volumes to be only marginally (+3%) ahead of the prior year, and for the operating margin to be about the same. It’s worth noting that the sales rate of 0.53x (per outlet per week) so far in 2024 is some way lower than peers such as Taylor Wimpey, whose equivalent rate was 0.67x.”

Mr Creasey also said it was “notable” that Persimmon, which “has long had a reputation as a cash generative business”, anticipates returning to a “net debt position at some point in 2024”.

Persimmon said it plans utilise its £700m revolving credit facility to expand its outlet base and invest in work in progress in anticipation of market conditions rebounding.

Mr Creasey observed: “The company expects to finish 2024 with net cash between £0-200m. Commentary suggests this is to support expansion in anticipation of an upturn in the housing market.

“The board intends to at least maintain the 60p dividend in 2024, despite the falling cash balance, but investors may need to be convinced that the falling cash is not an issue, noting that the company has always finished the year with more cash than this every year since 2012.”

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Persimmon said trading in the current year has started in line with expectations, with its net private sales rate per outlet per week at 0.59 in the first 10 weeks of 2024, up from 0.54 in the same period last year.

Dean Finch, chief executive of Persimmon, said: “Although the near-term outlook remains uncertain, the significant pent-up demand for homes remains unchanged.

“We are well placed to manage the ongoing uncertainty and we have good visibility over our land pipeline which, over the medium-term, will support a return to growth in outlets and volumes, alongside improved margins and robust cash generation, paving the way for sustainable shareholder returns."

Persimmon proposed a total dividend of 60p per share, in line with last year, and said the board’s intention is to at least maintain that level of pay-out to shareholders for 2024.

Shares closed down 50.5p, or 3.67%, at 1,324p.