There’s a UK housing market theme in this piece…
Different parts of the sector — real estate services businesses like Savills (LON: SVS) and housebuilders such as Persimmon (LON: PSN) — have shown signs of pressure as rising rates and the inflationary environment pressure demand and impact earnings.
Key UK data, including unemployment on Tuesday, August 15, inflation on Wednesday, August 16, and retail sales on Friday, August 18, could impact how the BoE moves rates at its next meeting.
Here’s why there could be downside for Savills and Persimmon shares this week:
Savills
- Savills posted its half-year report on Thursday last week, with its stock plunging more than 10% in the aftermath.
- The real estate services firm reported revenue of £1.01 billion in the six months to June 30, down 2.5% from H1 2022, while profit before tax came in at £6 million, a significant drop from the £50.4 million in the same period last year.
- Savills, which operates in various regions, said interest rates and inflation have resulted in reduced transaction volumes.
- UK inflation data is reported on Wednesday, and while SVS said it is “seeing some positive signs in markets such as the UK,” any talk surrounding more rate hikes should pressure the stock.
Persimmon
- Despite also reporting lower revenue and significantly lower profit before tax last week, the PSN share price rose.
- The company’s interim dividend per share of 20p may have helped while it said full-year completions are expected to be at the top end of its previously forecasted range.
- PSN shares are down around 8% this year, but the company remains optimistic, as the “longer-term outlook for housing remains positive,” and cost inflation is expected to moderate.
- Even though we share the long-term outlook sentiment, the stock could face some downside as demand remains pressured and rates remain high.
- 2 firms are currently short 1.78% of PSN’s shares, with GLG partners increasing their short position in the stock to over 1% at the end of July.
By James Fyeman