Blain’s Morning Porridge – March 14th 2022: Sell Persimmon – a bad company that fails every ESG test
“Bad companies are destroyed by crisis and consumed by greed – good companies thrive in adversity, and improve by respecting their clients.”
This morning – Persimmon, the UK home builder, demonstrates just about every single possible corporate failing; bad governance, greed, social and environmental contempt, and protects itself with purchased politicians. Time it was disciplined by the market.
The War in Ukraine, geopolitical uncertainty as the tectonics shift, and market consequences dominate the big picture. This week could develop with frightening speed if Russia becomes more aggressive and murderous as it lays siege to Kyiv.
However, life goes on. I flew back into London on Friday, and it immediately struck me how little changes. There was a massive queue at passport control because the automatic scanners still don’t work 70% of the time, and only 1 officer on the desk as 3 superjumbos landed. Government lawyers are scared to seize oligarch assets in case they end up in court, and the abysmal failure to support Ukrainian refugees stands in stark contrast to individuals doing whatever they can to aid its people.
I sense a crisis across the UK – a glaring lack of political integrity, a rising stench of corruption and mismanagement, and an null-entropy institutionalised bureaucracy mired in lethargy, disinterest and a “can’t-be-done” mindset. Such conditions create serious dangers for the economy.
Which is why I have a very simple investment thesis for you this morning – sell Persimmon, one of the oligarchy of big home builders that dominate, distort, abuse and profit by manipulating the UK’s never-ending housing crisis. It a good example of what is increasingly wrong in Corporate UK.
Simply put; Persimmon is a bad company. It gets away with being a bad company because its big and nobody listens when small folk complain.
So… I am going to make Persimmon a test of just how much the Big Investment Firms really care about ESG investment principals. Every big fund now claims they only invest in companies that meet strict ESG (Environment, Social and Governance) standards. My case is Persimmon fails just about every aspect of good corporate governance, has zero concern about the social consequences their actions create, and leavens their business with a basic contempt for our environment. Persimmon fails every ESG tickbox – but somehow gets away with it – thus far.
Once you’ve read this Morning Porridge, please forward it to your property investment team, your investment committee, or your pension advisor and ask them to check you are not invested in Persimmon via any discretionary funds, and that you don’t hold any funds invested in the stock.
It may seem counter-intuitive to put out a punishment sell recommendation on a firm making £1 bln per annum in profits, sitting on a massive landbank they hope to grow gold upon by winning planning permission, and with a reputation for cost control – achieved by cutting “unnecessary” costs – like non-delivery of services, promised community projects or rectifying problems. A bad company is a bad company.
A few years ago Persimmon did take a media relations spanking after it awarded its CEO a £128 mm bonus – the largest number ever paid by a public company. Its top 150 execs walked away with shares of a £800mm bonus pool. Not bad for a firm that achieved its scale, market dominance and profitability as a result of ruthlessly exploiting the Conservative Government’s Help-To-Buy scheme – in effect channelling government subsidies into the pockets of its execs.
Some might say that’s the way capitalism works. Sadly, it is. Where policy results in a very few large players controlling a market – it works for them. Not consumers. There comes a time when Bad-Capitalism has to be disciplined.
Not only has Persimmon been ripping off tax-payers via help-to-buy, but it has a reputation for appalling build quality (famously building one block of flats the wrong way round…). They’ve got away with it for years – with the connivance of a financial industry hungry for fees and returns that became blind to how these fees would be achieved. A few months ago I railed at the property firms who refused to pay the costs of cladding replacement, leaving millions of UK citizens in negative equity with unsellable homes.
Of course, it helps the Large Property Firms make the largest donations to politicians.
Property firms contribute nearly 25% of the Conservative party’s total donations. Its little surprise planning minister Robert Jenrick was hauled over the coals after a party doner got the decision to refuse a large development in East London turned around. A key word here is “inuendo” – the default expression property developers and politicians use to describe any suggestion of impropriety. Boris Johnson personally received £50k from firms linked to the cladding scandal, according to the Times.
Now, before I tell a tale of just how evil Persimmon is – let me declare an interest.
I live in Hamble, Hampshire, a small village on a peninsula on the South Coast. Hamble has one of the busiest B-roads in the country, because there is one road in and out, and much of the UK’s petrol is disbursed from a site in the village. The village is spread around the site of a historic airfield – used by the Spitfire Girls in the Second World War to deliver front line aircraft to squadrons, then to train commercial pilots. It was finally closed in 1986 and the land sold to a property company. It was designated as Green Field and has been enjoyed by the residents and dogwalkers for decades.
Now Persimmon owns the land.
Naturally Persimmon want to build houses on airfield. Hamble is a prosperous village. It’s the centre of UK sailing, has attracted a host of marine businesses, meaning the limited housing stock in the village is expensive. No surprise Persimmon are extremely keen to reap windfall profits on the site by building on what is the only green space available – giving themselves an effective monopoly on new housing supply.
If anyone complains about plans to build homes, they are immediately dismissed as a NIMBY – Not in my back yard. Over the past 10 years thousands of new homes have been built around Southampton – contributing to the burgeoning profits of the builders and their £3 bln cash pile. Yet, local resources; roads, schools, medical services have not changed and are woefully inadequate for more people.
The proposed Hamble development is different. It’s always been unlikely any developer would ever get permission to build on Hamble Airfield – because its green field and forms a gap to the next village. A few years ago the site was listed a “resource” under the county plan for the sand and gravel underlying the old airport. Until that local resource is mined it can’t be used for anything else.
Persimmon still own the land, but have built a relationship with Cemex, a Mexican firm specialising in aggregates, to dig a quarry right in the centre of the village, and remove 1.6 mm tonnes of sand and gravel over some 10 years, before “restoring the site”, or as Persimmon hope, enabling it to be used for housing. There is no shortage of sand and gravel available elsewhere in Hampshire – millions of tonnes of it are dredged from the sea-lanes into Southampton every year. Building a quarry right in the centre of the village is just cover for Persimmon to get closer to building homes.
They don’t care what damage their insatiable greed will cause. The quarry will be within meters of two local schools. The plans make no mention of how kids will be protected from dangerous silicon dust, or the additional exhaust fumes of 140 plus 40 ton lorry movements every single day down an already congested local road network. Already local resident are suffering from the plans.
In short, Persimmon is willing to compromise the health, safety and well-being of Hamble residents today so it can reap windfall profits down the line. They are willing to destroy the village today so they can build homes tomorrow.
That is bad capitalism. It is bad corporate governance for a firm to actively conspire against residents, it is socially divisive and destructive, and it is going to prove an environmental disaster removing a wild area and its wide diversity.
Our local Tory MP has asked questions – but its Boris that answered… draw your own conclusions.
If Government will not protect us, then the only answer is to fight bad companies where it hurts – in the market by campaigning for large investors to sell bad companies that exploit rather than enhance our society! Even more so, if all the private investors and pension savers start to demonstrate their power by disinvesting – that’s when bad companies will have to take notice.
Strategist – Share Capital