Persimmon’s share price plummeted to a one-month low last month, as the house building firm came under fire from the government about profits accrued via the Help-to-Buy scheme.
The FTSE 100 firm released its full-year trading report, which showed that its pre-tax profits reached £1.09bn last year, a 13 per cent year-on-year increase.
Yet despite this, the firm’s share price dropped dramatically, losing almost eight per cent of its value over the weekend, in the latest sign that day traders should always look beyond the bottom line.
Help To Buy Scheme Abuse
Despite its robust 2018 performance, Persimmon has been called out by Housing Minister James Brokenshire, over concerns about the way in which it operates within the publicly-funded Help-to-Buy scheme.
On Saturday, it was revealed that Brokenshire was becoming “increasingly concerned” at Persimmon’s use of the scheme, with some reports suggesting that the housebuilding firm has been cutting corners on construction work, and selling houses with rising leasehold charges which make them harder to sell on.
These actions could place Help-to-Buy homeowners at a disadvantage when they attempt to resell their homes, thus undermining the entire purpose of the scheme.
The Help-to-Buy scheme was designed to help first-time buyers get a foot on the property ladder by allowing them to save for a deposit within an ISA wrapper while benefitting from government bonus payments. The scheme was also intended to encourage more house building across the UK, and many housebuilders have seen an uptick in their productivity and profits as a direct result of the Help-to-Buy boost.
Persimmon Profits Ring Alarms
Directly after the news, a government spokesman indicated that officials would be looking into Persimmon’s huge profit margins, and vowed to change the way the Help-to-Buy scheme is used in the future.
“Help-to-buy will look different,” the spokesman said. “We’ve already said it will look only at first-time buyers and we will definitely not be funding leasehold properties. We will look carefully at developer performance over recent years.”
This language has clearly spooked Persimmon investors, who fear the prospect of an expensive government enquiry, which may result in profit-denting fines. Meanwhile, if Persimmon’s 13 per cent profit growth is unsustainable, it makes sense that investors would consider cashing out now and considering other property stock instead.
Whatever 2019 brings, the Persimmon/Help-to-Buy controversy proves that investors should keep reading the financial pages, and always query a balance sheet that seems too good to be true.