Sunniva Kolostyak: This week, our stock in focus is Persimmon (PSN). It’s just been announced that the housebuilder is being relegated from the FTSE 100 in this week’s reshuffle. This is not a surprise if we look at the share price, which is down 16% this year, or the market conditions of higher interest rates, an uncertain housing market and inflation, to name a few.
Our analysts have taken a look at Persimmon’s earnings from earlier this month. Underlying operating profits reportedly fell 65%, but our analysts believe the UK’s biggest home builder is in good financial health, holding a net cash position of £357 million at 2023 half-year end.
They also believe Persimmon is ideally positioned in the lower-priced segment of the new-build market specifically. Half of Persimmon’s private market sales are to first-time buyers.
But Persimmon has been booted from the FTSE 100, and that can have implications. When a company is relegated, it gets a lot of negative attention, and many index funds will have to sell off their positions. So it’s important to keep calm and review why this happened first.
In Persimmon’s case, Morningstar analysts maintain a fair value of £2.30 per share. Currently, the stock is trading at about £1.70 – and it’s actually up since it was announced that it was demoted to the FTSE 250. That means it’s rated as being a significantly undervalued stock by our metrics.
If we’re actually nearing peak interest rates and inflation, maybe there could actually be better times for Persimmon on the long-term horizon.
For Morningstar, I’m Sunniva Kolostyak.
