The UK Housing market witnessed a “mini-boom” after the lockdown easing. Consequently, the house prices jumped 1.6% month-on-month in July. The prices were 3.8% higher year-on-year. Meanwhile, the government is planning to slash house prices by 30% for first-time buyers and key workers.

Persimmon PLC – Forward Sales Risen Ahead of Last Year

Persimmon PLC (LON: PSN) is a FTSE 100 listed Company, which is involved in housebuilding business across England, Scotland, and Wales. It trades under the brand name of Persimmon Homes, Charles Church, Westbury Partnerships, and FibreNest.

The Company is expected to announce H1 FY20 results on 18 August 2020.

Recent News

24 June 2020: Dean Finch was appointed as Group Chief Executive. He has succeeded David Jenkinson and will take up the CEO post at the end of the current year.

Trading Update (as on 9 July 2020)

The Company announced an update ahead of Half Year Results to 30 June 2020. As per the update, the Company entered the second half in a strong position with forward sales around 15% ahead year on year and cash holdings of nearly £830 million. The total revenue for H1 FY20 was £1.19 billion (H1 FY19: £1.75 billion) while 4,900 legal new home were completed. Ever since sales reopened in mid-May, the Company has witnessed a strong performance. Moreover, the cancellation levels remain in line with historical trends. The forward order book at 30 June 2020 stood at £1.86 billion (H1 FY19: £1.62 billion). Regarding the liquidity as of 30 June 2020, the Group held cash of £830 million and Revolving Credit Facility of £300 million.

Share Price Performance


1-Year Chart as of 7 August 2020, after the market close (Source: Refinitiv, Thomson Reuters)

Persimmon PLC’s shares closed trading at GBX 2,407.00 on 7 August 2020, up by 1.82% against the last day closing price. Stock 52 week High and Low were GBX 3,328.00 and GBX 1,367.50, respectively.

From the technical standpoint, 14-day RSI is currently close to the oversold zone, which means there is a good potential for a short term rebound in the stock price.

 
Valuation Methodology



Risk Assessments

The shutdown of sites, sales offices, and off-site manufacturing facilities due to Covid-19 restrictions can lead to a significant decline in earnings and cash flows. Moreover, the changing patterns of consumer demand pose a risk to future developments as well. Also, the recessionary economic conditions can impact consumer confidence and demand in the short-term.

Conclusion

The Company is encouraged by the strong level of customer reservations since mid-May. Moreover, the selling prices remained firm during the first half of 2020. The 15% growth in forward sales underpins the potential for future developments. Despite the uncertainties of Covid-19 pandemic, the Company is confident of growth in the long run. Due to the risk associated with the cyclical nature of the housing market, the Company has been maintaining operational flexibility to deploy capital at the right time in the cycle.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance at the closing market price of GBX 2,407.00 (as on 7 August 2020) and will recommend fresh buying at the right time.
 
Taylor Wimpey PLC – Dried up housing sales during the pandemic dragged the Company into losses

Taylor Wimpey PLC (LON: TW.) is a FTSE 100 listed residential property developer. The Company operates from 24 regional offices across the United Kingdom, with further operations in Spain.

The Company is expected to release the next trading update on 11 November 2020.

Recent News:

18 June 2020: The Company raised approximately £515 million by issuing 355,000,000 new ordinary shares. Following the admission, the total number of shares in issue in the Company held at 3,644,407,849 ordinary shares.

Half-year results (for the period end 28 June 2020)


(Source: Company Website)

As per the update released on 28 June 2020, the performance of the Company during H1 FY20 was affected by the closing of sites and sales centres. However, all the sites are reopened now, and the Group has returned to a sustainable level of sales. In H1 FY20, revenue declined by 56.4% year-on-year and the Company reported a loss for the period. During the first half of 2020, the Company completed 2,771 homes, which was significantly impacted by site closure. However, the order book was 15% up (year-on-year) as at 28 June 2020, with a value of £2,904 million (30 June 2019: £2,366 million). During the period, the Company also raised around £510 million through equity for investment in attractive land opportunities.

Share Price Performance


1-Year Chart as of 7 August 2020, after the market close (Source: Refinitiv, Thomson Reuters)

TW’s shares closed trading at GBX 119.50 on 7 August 2020, up by 0.97% against the last day closing price. Stock 52 week High and Low were GBX 237.70 and GBX 101.00, respectively.

From the technical standpoint, 14-day RSI is currently in the oversold zone, which means there is a good potential for a short term rebound in the stock price.
 
Valuation Methodology
 

 
Risk Assessments

The Covid-19 pandemic is one the emerging risk which has been directly impacting the business. Moreover, it can reduce mortgage affordability and housing demand. The disruption to the supply chain can increase material costs. The performance is also subject to the change in government policy and planning regulations as it can affect the value of land purchasing. Brexit is also posing a risk to the employment cost for the Company.

Conclusion
Inevitably, there is a high degree of uncertainty in the short-term period from both Covid-19 pandemic and Brexit. However, the demand for a home purchase has been robust. As of 26 July 2020, the Company was nearly 97% sold for private completions for 2020. Moreover, the order book has increased in H1 FY20 in both number and value of homes. Meanwhile, the cancellation has remained low throughout H1 FY20. Therefore, the Company expects to end FY20 in a net cash position in the range of £550 million to £750 million. The Group expects to grow in the medium term as opportunities and pipeline appear to be at a high level. The growth shall be supported by the strong housing demand in the UK.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance at the closing market price of GBX 119.50 (as on 7 August 2020) and will recommend fresh buying at the right time.
 
 
*All forecasted figures and Industry/Peer information have been taken from Refinitiv, Thomson Reuters.
*Dividend Yield may vary as per the stock price movement.

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