Persimmon PLC

Persimmon PLC (LON: PSN) is an FTSE 100-listed company and is engaged in building quality homes for the people of the UK at various price points.  

Investment Rationale for Valuation – Buy at GBX 2,236.00

• Decent Performance: The Group reported decent performance in FY21 as it was able to deliver more homes at a higher average selling price.
• Good Demand: The company witnessed the demand for its houses throughout the year in FY21 and the average private weekly sales rate reflected 9% higher than in FY20.
• Uptick in Revenues: The Group reported total revenues of £3.61 billion in FY21, compared to £3.33 billion in FY20.
• Technical Indicator: The share price is still in the oversold zone and has a positive price potential.

Key Risks

• Business Risk: The housing industry is cyclical in nature and there can be prolonged periods of subdued sales.
• Inflation Concerns: The current high levels of inflation might put pressure on the input costs of the company.

Financial Highlights (as of year ended 31 December 2021, as reported on 02 March 2022)

(Source: Company Website)

• Growth in Bottomline: The Group 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.

One Year Share Price Chart

(Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22E)

*Peers: Few peers considered are Portmeirion Group PLC, Sanderson Design Group PLC and Cairn Homes PLC.

*All selected peers are LSE-listed Companies from the Consumer Discretionary sector.  

Conclusion

The company is optimistic about its trading prospects with current forward sales of £2.21 billion as reported on 2 March 2022. The Group anticipates delivering volume growth of 4-7% in FY22 with the margins intact.

Based on the decent fundamentals, optimistic outlook, 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 2,236.00 (as of 21 April 2022, 09:01 AM GMT+1).

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.

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.

Note 5: ‘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.’

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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