Persimmon PLC (LON: PSN)

Persimmon is an FTSE-100 listed company, engaged in the housebuilding business across England, Scotland, and Wales. The Company operates under three brands – Persimmon Homes, Charles Church and Westbury Partnerships. The Company is focused on providing homes ranging from studio apartments to family homes.

On 02 March 2022, the Company will release FY21 financial results for the year ended 31 December 2021.

Recent trend of dividend payments

PSN had paid an interim dividend of 110 pence per share on 13 August 2021, while the ex-dividend date was 22 July 2021. Moreover, the Company had paid a total dividend of 235 pence per share during FY21.

(Data Source: LSE Website, Research done by Kalkine Group)

Growth Prospects

• Positive Industry Dynamics: The UK housing market is carrying the positive momentum illustrated by longer-term fundamentals, with resilient consumer confidence. Moreover, the demand is expected to outstrip supply across the UK because of the good levels of mortgage availability.
• Strong Land Opportunities: The Company had managed to add 20,500 new plots into the business in FY21, an increase of around 140% of current consumption levels. Moreover, the strong pipeline illustrated excellent momentum as the Company will bring these sites into construction as soon as possible
• Vertical Integration: The vertical integration through Brickworks, Tileworks and Space4 manufacturing facilities will mitigate the risk related to supply chain disruptions to a larger extent.
• Environmental Benefits: The Company aims to deliver 'net zero' homes in use to its customers by 2030 and become 'net zero' in its operations by 2040.

Key Risks 

• Federal Meeting: As the Federal Meeting has signalled the interest rates hike and monetary policy tightening, it can keep the equity market under pressure.
• Inflation Concern: Due to the inflationary pressure, the Bank of England increased the Bank Rate by 25 basis points to 0.50%. It can keep the equity market under pressure amid the rising US Dollar index.
• Sluggish UK Macroeconomic Indicators: The UK Composite PMI fell marginally to 53.4 in January 2022 from 53.6 in December 2021, while the UK consumer price inflation breached a nearly 30-year high of 5.4% in the 12 months to December 2021.

Key fundamental and shareholders statistics of Persimmon PLC.

BlackRock Institutional Trust Company, N.A. is the most significant shareholder as it holds nearly 16.72 million shares as of 31 December 2021.    

FY21 Trading Update (for the full year ended 31 December 2021, as on 13 January 2022)

(Source: Company Filings)

• Decent Top-Line Business: The Company posted revenue growth of around 8.41% from £3.33 billion during FY20 to £3.61 billion for FY21.
• Accelerated Operational Progress: PSN’s new home legal completions came out to be 7% ahead of the prior year. It stood at 14,551 for FY21.
• Balance Sheet: The Group held £1.25 billion of cash as of 31 December 2021 with deferred land commitments of around £400 million. In comparison, PSN had £1.23 billion of cash as of 31 December 2020.
  

Financial Ratios (H1 FY21)

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 14 February 2022 at 09:07 AM GMT, PSN’s shares were trading at GBX 2,391.00, down by around 2.37% against the previous day closing price. Stock 52-week High and Low were GBX 3,272.00 and GBX 2,321.00, respectively.

On a daily chart, the stock price is hovering between the lower Bollinger band and the middle Bollinger band. Hence, there could be an uptick in the stock price in the near term. Meanwhile, the 14-days RSI of~37.91 indicates a bullish price momentum.

Valuation Methodology: Price/Earnings Approach (FY21E) (Illustrative)

Business Outlook

PSN has kickstarted its FY22 with a positive momentum reflected by robust current forward sales position significantly ahead of 2019 levels. The Company focuses on mitigating financial risk and continue to make lucrative capital investments by acquiring high-quality land to cater to the housing needs across a wide range of clients. The Group remained focused on strengthening its outlet network as several sites were under construction, getting ready for the sales release and PSN had plans to open 75 new sites during H1 FY22. In a nutshell, PSN has a long-term strategy to generate superior return for the stakeholders through its business.

Considering the strong liquidity position, sustainable business model, high-quality of land holdings, decent profitability margins, strong customer demand, encouraging sales levels, sturdy signs of progress, and support from the valuation as done using the above method, we have given a “BUY” recommendation on Persimmon PLC at the current price of GBX 2,391.00 (as on 14 February 2022 at 09:07 AM GMT), with lower-double digit upside potential based on 11.27x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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