Business Overview: Persimmon PLC – Sales Offices Opened in England

FTSE 100 listed Persimmon Plc (LON: PSN) is a York, United Kingdom-based housebuilders’ group, which serves local markets with 31 regional offices across the UK. It was founded in 1972.

On 9^th July 2020, the Company will release its trading update.

COVID-19 Update (as on 14^th May 2020)
In response to new UK government guidance, the Company’s sales offices in England were opened on 15^th May 2020. In the week beginning 4^th May 2020, it had restored production capacity of approximately 65 per cent. In Scotland, all Persimmon’s businesses are still in shutdown face, while it is awaiting further Scottish Government guidance on a restart timetable.

With strict new social distancing and additional hygiene measures in place, all sales offices and show homes will re-open. This is fully compliant with the latest UK Government guidance. Primarily, sales consultations will be on a pre-booked appointment basis only.

For the 8 weeks ended 10^th May 2020, the Company secured 1,351 gross private sales reservations and managed 1,300 legal completions.Whilst cancellation levels stayed in line with historic trends.

Share Price Performance

1-Year Chart as at June-02-2020, before the market close (Source: Refinitiv, Thomson Reuters)

On 2^nd June 2020, before the market close (at 11:05 AM GMT+1), Persimmon Plc’s shares were trading at GBX 2,397 and were up by 0.33 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 3,328.00/GBX 1,367.50.

From the technical standpoint, its shares were trading well above its short-term support level of 20-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further.

Valuation Methodology


Valuation Metrics

(Source: London Stock Exchange)

As on 30^th April 2020, the Price to Earnings, EV/EBITDA and Price to Book multiples of the PSN were 8.3x, 5.9x and 2.2x, respectively, and the same multiples were lower as compared with the Households Goods & Home Construction industry. It is reflecting that the company’s shares are undervalued based on above metrics as compared to its peers.

Growth Catalysts
The company is making efforts to grow and could be an opportunity for investors to invest. The group has a strong balance sheet with adequate liquidity for long term growth.

Conclusion
The new measures released by the Government will re-open the housing market, which allows people to get moving again, and the urgent need for new homes has not been diminished by COVID-19. To support the Government, the group has opened its construction sites in a phased manner from 27th April 2020. The company continues to make decent progress with the execution of its client care enhancement plan. The group is providing the maximum benefits to the clients from the service and quality improvement initiatives. Persimmon is open for business, while it is ongoing to play the chunk in rebuilding UK's economy.

Based on the decent prospects and support from the valuation as done using the above method, we have given a “HOLD” recommendation at the current price of GBX 2,338.00 (as on 2^nd June 2020, before the market close at 8:15 AM GMT+1).

Taylor Wimpey PLC – Reopening of Sales Centres and Show Homes

Taylor Wimpey PLC (LON: TW) is a residential property developer company. The Company operates from 24 regional offices.

On 9^th July 2020, the Company will announce its 2020 half-year results.

Recent News
On 14^th May 2020, the Company had been informed that Irene Dorner, as a Director and Chairman of Taylor Wimpey Plc, has been appointed as Chair of the Audit Committee of AXA SA on an interim basis, with immediate effect.

Update with Respect to Phased Reopening of Sales Centres and Show Homes (as on 13^th May 2020)
As per the housing market, the conditions have stayed stable with customer interest since the re-start of site activities and signs of increased sales activity. As per the UK Government guidance, which was released on 13th May 2020, it is supporting the return of activities related to the sale and purchase of homes and removing the restriction on non-essential home moves.

The order book has continued to grow, while cancellation rates have fallen. At week ending 10 May 2020, the total order book increased to 11,033 homes, with a value of GBP 2.7 billion.

From this announcement, the company’s show homes, and sales offices were opened from 22 May 2020. Presently, the construction is underway at almost 90 per cent sites across Wales and England. For customers, TW extended the two-year warranty and improved support in the period of lockdown. Taylor Wimpey has launched the new discount scheme for care workers.

Share Price Performance Analysis

1-Year Chart as at June-02-2020, before the market close (Source: Refinitiv, Thomson Reuters)

On 2^nd June 2020, before the market close (at 11:54 AM GMT+1), Taylor Wimpey PLC’s shares were trading at GBX 154 and were up by 1.785 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 237.70/GBX 101.00.

From the technical standpoint, its shares were trading well above its short-term support level of 20-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further.

Valuation Methodology


Valuation Metrics

(Source: London Stock Exchange)

As on 30^th April 2020, the Price to Earnings, EV/EBITDA and Price to Book multiples of the TW were 7.2x, 5.1x and 1.5x, respectively, and the same multiples were lower as compared with the Households Goods & Home Construction industry.

Growth Catalysts
The group has witnessed an increasing demand in the order book in Q1 FY20 as compared to Q1 FY19, while the total order book as at 10th May has augmented to 11,033 homes, with a value of GBP 2.7 billion.

Conclusion
Even in the first quarter of the financial year 2020, there were fewer cancellation in order book despite the lockdown state caused by Covid-19. The Group has been taking orders remotely, while the contraction sites were shut down. However, TW is now reopening sales centres and show homes, following the updated Government guidance. The Group also confirmed its eligibility for Covid Corporate Financing Facility, subject to documentation. As the company has opened the sales offices and show homes from 22 May, their business position shall improve. Moreover, the strong balance sheet and cash position should help the company to weather this uncertain period.

The Group has shown impressive growth in the last four years, which indicates the financial resilience and strong business model of the group. Over the last four years, revenue rose at a CAGR of 8.4%, while EPS diluted grew by 8.8% and ROE at a CAGR of 4.1%.

Based on the decent prospects and support from the valuation as done using the above method, we have given a “HOLD” recommendation at the current price of GBX 150.33 (as on 2^nd June 2020, before the market close at 8:15 AM GMT+1).
 
*All forecasted figures and Peer information have been taken from Refinitiv (Thomson Reuters).

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