Shares in housing bellwether Persimmon (PSN) rose on Tuesday despite a mixed trading update. Housing completion numbers showed a negative trend in the third quarter, but average prices remained strong and the company has upgraded its full-year completion forecasts.
House completions in the third quarter fell 37% to 1,439 from 2,270 a year prior. Private home completions were down 35% to 1,234 from 1,894. The current forward sales position contracted by 23% to £1.62 billion from £2.09 billion. Persimmon expects around 9,500 completions for 2023, down 16% from 11,282 in 2022 and 13% lower than 10,965 in 2021, Alliance News reports. But this 9,500 full-year figure is higher than forecast.
The company said the 2024 housing market outlook remains highly uncertain.
Morningstar analyst Grant Slade says the shares remain undervalued:
“Persimmon delivered a somewhat mixed third-quarter trading statement that featured positive news regarding its home completion volumes in late 2023, in tandem with a disappointing update on the near-term trajectory for build cost inflation.
“With Persimmon fully forward sold for the current fiscal year, the no-moat homebuilder has lifted its full-year 2023 home completion guidance to 9,500 homes, a 6% increase relative to previous guidance and our prior forecast of 9,000. However, build cost inflation has remained more stubborn than previously anticipated, with Persimmon expecting full-year 2023 build cost inflation in the range of 8%-9%, tracking above our prior full-year forecast for 6%.
“Persimmon shares are up at the time of writing but remain materially undervalued, in our view, trading at a steep 51% discount to our unchanged £23 fair value estimate. While we’re underwhelmed by the persistence of build cost inflation in 2023, we still expect profit margin relief to eventuate in 2024, with Persimmon securing price reductions for both labor and building materials in recent months.”
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