£1,000 invested in Persimmon shares before the UK election is now worth

Home builders are highly dependent on government policy and regulations. This was evident throughout the 2010s when home ownership was heavily promoted through programs such as Help to Buy and the sector exploded. Nothing more, perhaps, than that Persimmon (LSE: PSN) shares, which have risen almost 20 times in value in less than a decade.

Times

Although stocks have stagnated since then – due to rising costs, high mortgage rates and the cost of living crisis – times are changing. A new government came in. They want “build, build, build”. The promise was house building standards that reminded us a lot of when Bob Dylan was playing acoustic! Construction of 300k new homes per year would be a 50% increase on current levels. If that target is to be achieved, the private sector must be involved.

So how are Persimmon shares reacting to the news? Well, in the beginning at least, it’s great. Shares are down 28% since election day through October, a strong sign of optimism for the company. Then came the Budget and the price dropped by 28%, close to where it is now. The budget did not help Persimmon. Instead it wiped out over £1bn of its market value!

So it goes up and down by the same amount in percentage terms? It’s annoying us Persimmon shareholders, isn’t it? Well, it’s worse than that! The 28% increase was a fraction of the 28% decrease. So Persimmon shares are worth even less now. A £1,000 stake before the election is worth £922 now.

What is the root of the problem? CEO Dean Finch says he is looking at a “time off”. He said negotiations with suppliers have already indicated an increase in prices. The main causes are likely to be increases in the minimum wage and employer NI across the supply chain. That tax increase will impact Persimmon’s margins directly, of course.

Do I sell?

There’s also a triple whammy here, and it comes in the form of a strict rule. From next year, all newly built homes will have to switch from using gas boilers as part of the Net Zero targets to completely eliminate them by 2035. That means builders will be choosing more expensive alternatives. It may mean fewer building completions if certain projects are unprofitable.

It’s not all bad though. The company has delivered a positive trading update on a raft of metrics. Visitor inquiries and other ‘soft’ metrics remain strong as well, a good sign of positive momentum and direction for where sales will be headed in the next few years. Although it hasn’t been the worst few months for Persimmon, I don’t have to think twice about what I’m doing with my stocks. It’s not a sell for me.