Credit Suisse ups Persimmon price target and reinstates dividend target

The investment bank kept its 'outperform' rating on the FTSE 100 company's shares and increased its price target to £29.17 from £27.01 driven by earnings upgrades and an increased estimate for return on invested capital.

Credit Suisse analyst Emily Biddulph said she was expecting Persimmon's volume guidance to suggest a stronger second half than the sector average. But she said the new guidance in the trading update for flat volumes in the second half implied annual revenue 8% higher than Credit Suisse's estimate and earnings per share 13% higher.

Persimmon said on Thursday that first-half revenue and completions were down because of the Covid-19 crisis but that demand in the past six weeks since sites reopened in England was up significantly on a year earlier. The company also said it would consider paying a final dividend for the year to the end of December 2019 after cancelling the payout in March.

Biddulph said Persimmon's shares had outperformed the sector in 2020 and there was scope for this to continue. Its investment in work in progress is relatively low risk and earnings are "less leveraged into any negative price", she said. Investors will expect a reinstatement of the canceled 110p a share dividend but there is little risk to the assumption and potential for growth in 2021, she said.

While expectations are now relatively high and the stock has performed well, we still see scope for incremental upgrades but still see earnings risk as low vs the sector," Biddulph wrote in a note to clients. "We are somewhat cautious that share gains may purely leave the group with a tough comp for 2021 … However, given the near-term level of uncertainty across the sector we view this as a potential consideration for Q3 at the earliest."

Persimmon shares were up 1.6% to £26.31 at 15:51 BST.