Michele Maatouk Sharecast News
10 Jan, 2025 11:03 10 Jan, 2025 11:03

UBS upgrades Persimmon to ‘buy’, says valuation is more compelling

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PersimmonCompany photo / Persimmon

Persimmon

1,078.50p

15:55 10/01/25
-1.24%
-13.50p

UBS upgraded Persimmon on Friday to ‘buy’ from ‘neutral’ as it said the valuation was now more compelling.

FTSE 100

8,260.63

15:55 10/01/25
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FTSE 350

4,528.31

15:55 10/01/25
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FTSE All-Share

4,483.34

15:55 10/01/25
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Household Goods & Home Construction

9,883.63

15:55 10/01/25
-1.68%
-168.78

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.

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