Stock of The Week: Persimmon

This week's Stock of The Week is Persimmon, Britain's second-largest housebuilder

James Gard 11 July, 2022 | 11:51AM
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James Gard: Welcome to Morningstar. Our latest stock of the week is Persimmon, which is Britain's second largest housebuilder. It's just put out a trading update for the first six months of the year, and it gives us clues about what's going on in the U.K. housing market.

So, the housebuilder said that legal completions are actually down this year compared to last, and it's blaming delays to the planning system, shortage of labor and shortage of materials. But it said these cost pressures are actually being offset by rises in house prices. So, this chimes with a report by the Halifax Building Society this week, which said that house prices hit a record high in June this year. But it said that house price growth is likely to slow.

Morningstar has just started covering Persimmon, and it thinks its shares are undervalued at around £18, and they assign shares a fair value of around £25.30. But shares are off about 40% this year, which suggests that investors are kind of pricing in the housing market slowdown narrative because of things like a looming recession and a succession of interest rate rises from the Bank of England.

Persimmon is actually the highest yielding stock in FTSE 100 with a yield around 12%, and it has a reputation as a generous payer of dividends. The company is going to update investors with full year results on the 17th of August, and we'll get a better clue of where it thinks the housing market is going for the rest of this year.

For Morningstar, I'm James Gard.

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James Gard  is senior editor for Morningstar.co.uk