Vivek Kumar
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The UK’s second-largest homebuilder Persimmon said its revenue and profit declined in 2020 but forecasts houses deliveries to reach pre-COVID-19 levels by 2022, sending its shares up over 6% on Wednesday.

The company is engaged in house building within the United Kingdom said its average private weekly sales for the first eight weeks were 7% ahead of last year. The company also said it expects 1H21 completion volumes to be in line with 1H19 of 7,584 units, with similar delivery in 2H.

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“With much of FY20 results already known, investors will be focused on scope for upgrades and an update on the CEO priorities. We see no update of margins guidance. The new priorities set out by the CEO may be the key to further upgrades – the first two bringing lower costs, and the positioning of growth on the list suggesting greater ambitions: 1) build right first time, 2) customer first, 3) growth, 4) maintaining and growing financial strength, 5)forefront of sustainability,” said Glynis Johnson, equity analyst at Jefferies.

“The group has confirmed it will return 235p this year, albeit the payments are slightly more spread (125p March, 55p Aug, 55p Dec), and reiterated its previous policy: 125pfinal, and interim reflecting excess capital (clarified as levels above £700m cash).”

The FTSE-100-listed Persimmon shares, which rose about 3% in 2020, surged nearly 6% to GBX 2,871 on Wednesday.

Persimmon Stock Price Forecast

Seven analysts who offered stock ratings for Persimmon in the last three months forecast the average price in 12 months of GBX 3,159.86 with a high forecast of GBX 3,349 and a low forecast of GBX 2,950.

The average price target represents a 10.48% increase from the last price of GBX 2,860. From those seven analysts, six rated “Buy”, one rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of GBX 2,950 with a high of GBX 3,900 under a bull scenario and GBX 1,100 under the worst-case scenario. The firm gave an “Equal-weight” rating on the UK’s largest housebuilders’ stock.

“FY20 contained few surprises after its January trading statement, but its 2021 volumes guidance was 2-3% ahead of our and consensus estimates,” said Christopher Fremantle, equity analyst at Morgan Stanley.

Several other analysts have also updated their stock outlook. JP Morgan raised the target price to GBX 3,360 from GBX 3,210. Citigroup lowered the price objective to GBX 3,130 from GBX 3,197. Jefferies upped the price target to GBX 3,349 from GBX 3,213.

Moreover, Barclays upgraded to overweight from equal weight and raised the target price to GBX 3,000 from GBX 2,800. Credit Suisse lowered the target price to GBX 3,006 from GBX 3094. Deutsche Bank raised the target price to GBX 3,283 from GBX 3,173.


Analyst Comments

Persimmon has broad UK coverage and low exposure to the south-east and London. This has helped the company in recent years, given a weaker market in this region. Persimmon entered the crisis in good shape, with good cash balances and a smaller land creditor position than peers; it has outperformed peers through a lockdown and is set to deliver a strong performance at 2H,” Morgan Stanley’s Fremantle added.

“At c12x 2021e EPS and 2.6x 2021 TBV (sector: 1.5x), valuation is full, in our view; 2021 is still uncertain and the investment case continues to depend on the extent to which Persimmon can sustain revenues, margins and RoE from already very elevated levels, particularly given risks from Help to Buy phase-out and CEO transfer.”

Upside and Downside Risks

Risks to Upside: We see house price growth heavily correlated with nominal GDP growth, with changes in household leverage and interest rates other key factors. As local currency players, sector share prices have tended to be positively correlated with sterling strength/weakness, and with house price growth 6 months forward – highlighted by Morgan Stanley.

Risks to Downside: See ‘Risks to Upside’. Also Help to Buy removal remains a downside risk to volumes.

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