UBS upgrades Persimmon to 'buy', says valuation is more compelling
UBS upgraded on Friday to 'buy' from 'neutral' as it said the valuation was now more compelling.
It said that key will likely be how quickly affordability improves through lower mortgage rates.
"We expect Persimmon's shares to re-rate as it delivers site growth and margin recovery," UBS said.
The bank said it thinks the stock now discounts a too bearish scenario. It noted that Persimmon's shares are down 33% since October and trade at 1x 2025E P/TNAV (long-term average 1.6x and near a historic trough) and only price-in circa 15% adjusted long-term return on capital employed, versus a UBS estimate of 20% and a 28% average since 2000.
"We think liquidation value of the land bank is around 1,460p (over +35% upside). We now model a more cautious earnings outlook for Persimmon reflecting recent company commentary and macro conditions (mainly higher swap rates), but think that is more than priced-in", it said.
UBS said Persimmon will likely work through a vast majority of fire safety provisions over 2025/26, which should enable more cash flow optionality thereafter.
The bank said it thinks EBIT margins have troughed at around 14% in 2023/24E and can gradually improve but only models a 20 basis points increase to 14.3% in 2025 with a margin recovery path to 20% by 2030, well below peak levels of 27-31% in 2017-22.
At 1100 GMT, the shares were up 1.3% at 1,106p.
Disclaimer & Declaration of Interest
The information, investment views and recommendations in this article are provided for general information purposes only. Nothing in this article should be construed as a solicitation to buy or sell any financial product relating to any companies under discussion or to engage in or refrain from doing so or engaging in any other transaction. Any opinions or comments are made to the best of the knowledge and belief of the writer but no responsibility is accepted for actions based on such opinions or comments. Vox Markets may receive payment from companies mentioned for enhanced profiling or publication presence. The writer may or may not hold investments in the companies under discussion.