Earnings

Does Persimmon’s share price have any upside left?

Does Persimmon’s share price have any upside left?

Persimmon's [PSN] share price has been volatile of late. Over the past three months, the stock is up over 3%, but during that time it has experienced some sharp falls. The UK's booming property market has given Persimmon’s share price a much needed boost, but fears over what a second lockdown will mean for homebuilders has meant the direction of traffic has been decidedly two ways.

That seemed to change last week as Persimmon's share price rallied 12.2%. Behind the optimism is the UK government saying that construction sites can remain open during the second lockdown and signs the property boom continued into October. That optimism could continue if Persimmon’s upcoming trading statement suggests the homebuilder has benefitted from the current UK property boom.

 

 

When is Persimmon reporting?

10 November

 

What could move Persimmon's share price post-earnings?

When Persimmon last updated the market for the six months to 30 June, it reported a 43% slump in sales as profit before tax came in at £292.4m, compared to £509.3m for the same period last year During this half, construction work stopped for over a month due to the coronavirus. The homebuilder completed 4,900 homes in that time, compared with 7,584 the same time last year.

However, the results also gave reason for hope for Persimmon’s share price prospects. Persimmon said sales in the first seven weeks of July were 49% ahead of where they were in the same period last year. The homebuilder's order book had also grown, with forward sales at £2.5bn compared to £2bn last year. These numbers gave Persimmon confidence to propose a 'modest' interim dividend of 40p a share.

With the upcoming trading statement covering the UK's property boom, Persimmon will be hoping to build on these numbers. According to estate agent Knight Frank, property prices increased 2.3% in the third quarter — the highest annual growth rate since March 2016. Driving this was the so-called race for space as affluent city dwellers bought up roomier property in the country — a trend that should be reflected in Persimmon’s upcoming trading statement. 

"Our strong opening work in progress position and excellent build rate through the summer give us confidence in a positive second half outturn. We expect that by the end of September, we will have delivered c. 45% of our anticipated second half new home legal completions," said Dave Jenkinson, Persimmon group chief executive.

 

"Our strong opening work in progress position and excellent build rate through the summer give us confidence in a positive second half outturn. We expect that by the end of September, we will have delivered c. 45% of our anticipated second half new home legal completions" - Dave Jenkinson, Persimmon group chief executive

 

Where next for Persimmon's share price?

Going into the last three months of the year, things are looking positive for Persimmon’s share price. House viewings and construction have been allowed to continue in the second lockdown. Momentum from the stamp duty holiday has also continued into the fourth quarter of the year. According to a recent Halifax survey, October saw UK house prices gain at their fastest annual rate in over four years.

Longer-term, a rise in unemployment and the end of the stamp duty holiday could put an end to the boom. Yet ultra-low interest rates mean mortgages are likely to continue, making buying a property more affordable. Something that will help Persimmon shift homes, especially with Boris Johnson's pledge to help first-time buyers onto the housing ladder. 

However, Persimmon’s share price rally will largely depend on the robustness of the UK economy and a vaccine for the coronavirus. While the housing industry is going into next year in a position of strength, it's looking likely it will slow in 2021, according to Russell Galley, Halifax’s managing director.

“Though the renewed lockdown is set to be less restrictive than earlier this year, it bears out that the country’s struggle with Covid-19 is far from over. With a number of clear headwinds facing the housing market, we expect to see greater downward pressure on house prices as we move into 2021,” said Galley.

 

"Though the renewed lockdown is set to be less restrictive than earlier this year, it bears out that the country’s struggle with Covid-19 is far from over. With a number of clear headwinds facing the housing market, we expect to see greater downward pressure on house prices as we move into 2021" - Russell Galley, Halifax's managing director

 

In this scenario, Persimmon’s share price is likely to be volatile until the headwinds Galley alludes to have been resolved. These include not only the pandemic, but its economic fallout and Brexit too.

Among the analysts tracking the stock on the Financial Times, Persimmon's share price has an average 3,020p price target. Hitting this would see an 8.24% upside (as of 9 November’s close). Of the 18 analysts offering recommendations, Persimmon has five Buy ratings and nine Outperform ratings.

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