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Persimmon plc (LON: PSN) share price flat despite recent scandals and first quarter sales slowdown

Builder spirit level

Builder spirit level

Persimmon plc (LON: PSN) the UK’s most profitable house builder announced earlier today that it’s forward sales revenue is down 5% as it seeks to improve its reputation following a series of scandals.

Persimmon has continually faced criticism about the quality of its building work with many new homeowners facing some serious buyers remorse. The company recently ranked the lowest out of all the major housebuilders in the latest Home Builders Federation new homes survey. To make matters worse a recent BBC investigation found that new builds constructed by both Persimmon and Bellway Homes were sold with missing or incorrectly installed fire barriers which are vital to stop a fire spreading through a property. Due to fire safety regulations it is required by law that any new homes are fitted with fire protection measures to delay the spread of a fire and allow the occupants time to escape.

An inspection programme covering 2700 homes conducted by Persimmon found more than 650 homes which were missing or had incorrectly installed fire barriers. Some of these issues have not yet been rectified and some homes have still not been inspected.

In a bid to improve it’s customer satisfaction in March Persimmon announced a new customer “retention programme”, which allows homebuyers to withhold full payment on properties until all faults are fixed. As part of the plan new purchasers will be able to withhold 1.5 percent of the total home value until any faults at a property have been fixed. They are also undertaking an independent review of their culture, workmanship and customer care policies. It might be too little too late as far as Persimmon’s reputation is concerned, it can often take many years for a company to turn it’s culture around and even once they have their house in order it can take several further years before customers start change their perception of the company.

To add to Persimmons potential problems the government is currently reviewing it’s help to buy scheme which enables homebuyers to purchase a new home with as little as a 5% deposit and the government taking up to a 20% equity stake in the property (40% in London). Persimmon depended on the help to buy scheme for nearly half of its sales last year so any changes will have significant consequences. Add into the mix the ongoing drag on property values from the current brexit uncertainty and it’s easy to see why Persimmon investors might be getting worried.

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