Persimmon Earnings: Shares Remain Materially Undervalued Despite Tepid 2024 Cyclical Recovery

While the cyclical recovery of Persimmon’s earnings is underway, the rebound in earnings in 2024 is shaping up to be more gradual than we’d previously forecast. Sales activity is improving, but at a more modest pace than we’d previously anticipated, thereby pointing to a softer second-half performance for Persimmon than reflected in our 2024 estimates. Year to date, the weekly private home sales rate on Persimmon’s development sites is ahead of last year—at 0.59 homes per active sales outlet in the first 10 weeks of 2024. While encouraging, the improvement is modest relative to 0.54 homes per active outlet in the prior corresponding period and likely holding back second-half volumes. In response to the more modest improvement in homebuyer appetite, Persimmon has—similar to its peers—continued with the use of sales incentives in 2024, which will restrain the extent to which profit margins recover in 2024, further holding back the near-term recovery in earnings for the no-moat homebuilder.