Persimmon Earnings: Shares Remain Attractive Despite Weak Start To 2023

Persimmon PSN confirmed its soft first-half 2023 result, which saw a 36% fall in home completions to 4,249 relative to the prior year, reflecting the weaker order book to start the year. Management expects a stronger second half of the year, anticipating full-year completion to be at least 9,000, at the upper end of its previously indicated range of 8,000–9,000. Private average selling prices in the current forward book are up 0.9% since the start of the year, but management gave no further guidance on average selling price, instead stating it anticipates operating profits in line with expectation, given continued build cost inflation.

Our long-term expectations remain unchanged, as does our GBX 2,300 fair value estimate. We see a fruitful decade ahead for Persimmon. Our positive long-term outlook contrasts starkly with the overly pessimistic investor expectations implied by Persimmon’s beaten-down share price, with shares trading at a meaningful 54% discount to our valuation.

Build cost inflation remains an ongoing challenge for U.K. homebuilders in 2023. Persimmon is anticipating prevailing build cost inflation of around 5%. Still, we continue to expect inflationary pressures to ease considerably from 2024 onward, with recent U.K. price level data conducive. While U.K. consumer price inflation remains elevated, wholesale price inflation is slowing rapidly—boding well for U.K. homebuilders battling with inflation in their cost base. The U.K. Producer Price Index—which tracks the factory gate price growth of U.K. manufactured goods—dropped to 0.1% in June 2023 from 2.7% a month earlier as declining energy prices feed into the price of manufactured goods. Labour cost inflation is yet to turn a similar corner, with average construction industry wages increasing 7% year on year in May 2023, according to the U.K. Office for National Statistics.