The Untouched Triumph of Persimmon

2023-09-04 07:40:27

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Sunniva Kolostyak: This week, our focus is on Persimmon (PSN). It has been announced that the housebuilder is being relegated from the FTSE 100 in this week's reshuffle. The share price has decreased by 16% this year due to market conditions such as higher interest rates, an uncertain housing market, and inflation.

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According to our analysts, Persimmon's earnings from earlier this month show a 65% drop in underlying operating profits. However, they believe that the UK's largest home builder is in a strong financial position with a net cash position of £357 million at the end of the first half of 2023. They also believe that Persimmon is well-positioned in the lower-priced segment of the new-build market, with half of its private market sales going to first-time buyers.

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Implications of Relegation

Being relegated from the FTSE 100 can have negative implications for a company. It attracts a lot of negative attention and forces many index funds to sell off their positions. However, it's important to remain calm and review the reasons behind the demotion.

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In the case of Persimmon, Morningstar analysts maintain a fair value of £2.30 per share, while the stock is currently trading at around £1.70. Despite the demotion, this means that it is considered significantly undervalued by our metrics.

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Better Times Ahead?

If we are approaching peak interest rates and inflation, there could be better times ahead for Persimmon in the long term.

For Morningstar, I'm Sunniva Kolostyak.

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