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.

Recent trend of dividend payments

The Company will pay a final dividend of 125 pence per share on 01 April 2022, while the ex-dividend date was 10 March 2022. Moreover, the Company had paid a total dividend of 235 pence per share during FY21, the same as the total dividend paid during FY20.

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

Growth Prospects

• Significant Investments: PSN had made a significant investment in the new Space4 factory. Meanwhile, the Company had also shown accelerated progress on its plans to increase output at Brickworks by around 25% and at Tileworks by about 50% during 2022.
• 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.
• Attractive Land Opportunities: The Company had managed to add 20,750 new plots into the business in FY21 from on-market purchases and the strategic land holdings. Moreover, the strong pipeline illustrated excellent momentum as the Company will bring these sites into construction as soon as possible

 Key Risks 

• Interest Rate Hike: The Federal Reserve announced a first interest rate hike (by 0.25%) in over three years and indicated seven rate hikes in 2022.
• Ukraine Tension: The mounting concern over the Russian invasion in Ukraine can continue to weigh on the equity market.
• Gloomy Outlook: The year 2022 is expected to be the year of inflation, Central Bank tightening, and wage pressure. All these factors can hurt the corporate profits and equity markets.

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.            

Financial Highlights (for the year ended 31 December 2021, as of 2 March 2022)

(Source: Company Website)

• Trading Performance: PSN witnessed a robust demand in FY21 as the average private weekly sales rate was 9% higher than FY20 and around 22% ahead of FY19.
• Pipeline: As of 31 December 2021, the Company owned and controlled 88,043 plots.

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 21 March 2022 at 08:13 AM GMT, PSN’s shares were trading at GBX 2,273.00, same as the previous days’ closing price. Stock 52-week High and Low were GBX 3,272.00 and GBX 2,101.55, 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 at 45.65 levels.

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

Business Outlook

PSN has kickstarted its FY22 with strong current forward sales of £2.21 billion, significantly ahead of 2019 levels. Moreover, PSN has a high-quality landholding with industry-leading embedded margins. The Group had anticipated decent volume growth ranging from 4% to 7% during FY22 when compared with the prior-year levels. The Company aims to mitigate build cost inflation through an increase in selling prices. In a nutshell, PSN had a long-term strategy to generate superior return for the stakeholders through its business.

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 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 price of GBX 2,273.00 (as of 21 March 2022 at 08:13 AM GMT), with lower-double digit upside potential based on 10.34x 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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