Housebuilders’ profit margins are expected to return to double digits next year, analysts said last week, providing hopes of improved trading for domestic service suppliers.
Numis Securities analyst Chris Millington said margins are set to climb from 5-10 per cent to 20-25 per cent, figures not seen since the downturn.
Persimmon and Bovis Homes have both stressed a focus on margins in their trading updates to the Stock Exchange for the first six months of 2011.
Mike Farley, chief executive of Persimmon, the biggest housebuilder by volume, anticipates the underlying operating margin for H1 2011 will hit 9 per cent, up from 8 per cent the year before.
Barratt has also reported a return to profit thanks to its London and South-east market, it said last week.
In a trading update for the year ended 30 June, the company said it expects to deliver a profit before tax and exceptional items of £40 million, compared with a loss of £33m in 2010.
Although after the costs of a four-year £1 billion refinancing are taken into account, the company is expected to make a small loss, its chief executive Mark Clare confirmed.
Meanwhile, Bovis chief executive David Ritchie said he is also confident of delivering an operating margin of at least 7 per cent for the same period, compared with 4.2 per cent for 2010.
Mr Millington said: “These companies are trading off a lot of land they bought pre-recession. The land they are buying now is reflective of lower house prices.”
He said house prices are the biggest risk to progress, but companies may benefit from keeping current administration costs down while increasing volume.
Panmure Gordon analyst Rachael Waring said: “Persimmon, Taylor Wimpey and others all forecast double-digit margins in 2012.”