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 07 July 2022, PSN will come up with a trading update.

Recent Trend of Dividend Payments

The Company has a progressive dividend policy to pay out to shareholders and decided to re-iterate its intention to return 235 pence per share in 2022. The first dividend payment of 125 pence per share was made on 01 April 2022, while the second payment of 110 pence per share will be made on 08 July 2022, with an ex-dividend date of 16 June 2022.

(Source: LSE, chart created by Kalkine Group)

Growth Prospects

• 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 

• Weak UK GDP Figures: According to the Office for National Statistics, the UK GDP grew QoQ by just 0.8% during Q1 FY22. Moreover, it had declined by 0.1% in March 2022.
• Labour Risk: The housing industry is a capital-intensive sector and is dependent on the skills of its workforce. Any challenge in the availability of the same, can lead to a resource crunch and impact the operations.
• Bank of England Warning: The Bank of England had trimmed its economic growth forecast for 2023 and is expected to show a contraction of 0.25% from a previously estimated growth of 1.25%. Moreover, it had also warned of UK inflation reaching around 10% very soon.

Key Fundamental and Shareholders Statistics of Persimmon PLC.

BlackRock Institutional Trust Company, N.A. is the most significant shareholder as it holds nearly 35.56 million shares. 

Trading Update (for the period from 1 January 2022 to 27 April 2022, as of 27 April 2022)

• Decent Trading Performance: PSN had demonstrated a decent trading performance illustrated by a 2% year on year growth in private average sales rates during the period and robust forward order book of £2.8 billion as of 27 April 2022.
• Strong Balance Sheet: The Company has £446 million of cash as of 22 April 2022, with deferred land commitments of approximately £160 million to the end of FY22.
  

Financial Highlights (for the 12 months ended 31 December 2021, as reported on 02 March 2022)

(Source: Company Website)

• Uptick in Revenues: The Group clocked total revenues of £3.61 billion in FY21, compared to £3.33 billion in FY20.
• Growth in Bottomline: PSN reported profit before tax of £966.8 million in FY21, compared to £783.8 million in FY20.
• Cash Position: The cash position stood at £1,246.6 million as of 31 December 2021, compared to £1,234.1 million as of 31 December 2020.

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 16 May 2022 at 10:25 AM GMT+1, PSN’s shares were trading at GBX 2,074.00, down by around 1.75% from the previous day closing price. Stock 52-week High and Low were GBX 3,272.00 and GBX 2,005.00, respectively.

On a daily chart, the stock price is sustained between the lower Bollinger band and the middle Bollinger band. Hence, there could be an uptick in the stock price in the near term. Also, the 14-days RSI stood ~42.28.

Valuation Methodology: Price/Earnings Approach (FY22E) (Illustrative)

Business Outlook

PSN has kickstarted its FY22 with a positive momentum reflected by a strong current forward sales position significantly ahead of 2019 levels. The Company focuses on mitigating financial risk and continues to make lucrative capital investments by acquiring high-quality land to cater to the housing needs across a wide range of clients. PSN has anticipated delivering volume growth ranging from 4% to 7% for FY22 when compared with 2021 levels. In a nutshell, PSN has a long-term strategy to generate superior returns for the stakeholders by offering high-quality homes at attractive prices.

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the strong liquidity position, sustainable business model, high-quality of land holdings, decent profitability margins, strong customer demand, encouraging sales levels, and support from the valuation as done using the above method, we have given a “Buy” recommendation on Persimmon PLC at the current market price of GBX 2,074.00 (as of 16 May 2022 at 10:25 AM GMT+1), with lower-double digit upside potential based on 9.36x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

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

Note 2: Investment decisions should be made depending on the investors’ appetite for 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 is subject to the factors discussed above.

Note 3: Target Price refers to a price level that 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.

Note 4:  Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Note 5: Dividend Yield may vary as per the stock price movement.  

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 the 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 unfavourable movement in the stock prices.

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