Persimmon: U.K. Homebuyer Confidence Improves in Early 2023; Shares Materially Undervalued

Investors cheered no-moat Persimmon’s first-quarter trading update, which offered evidence of improving U.K. homebuyer confidence in early 2023, albeit off a low base. Persimmon’s weekly private sales rate improved to a first-quarter average 0.62 homes per sales outlet, implying gradual improvement as the quarter progressed and an approximate doubling of the sales rate relative to the final quarter of 2022—when forward orders sank in response to the late 2022 surge in U.K. mortgage interest rates. Persimmon shares are 6% higher at the time of writing. Our 2023 financial estimates remain largely unchanged, and we forecast full-year 2023 operating profit of GBP 334 million and EPS of GBP 0.76. With investors overly focused on the glum housing market conditions that currently prevail, Persimmon shares screen as materially undervalued—trading at a 43% discount to our unchanged GBX 2,300 fair value estimate.