Dear reader,
Persimmon has shed roughly a third of its value in a bruising year for UK housebuilders. We hold a modest 1.86% position in Persimmon (LON:PSN) and think the market may be mispricing what comes next. It needs little introduction: one of the most recognised names in British housebuilding, and a FTSE 100 constituent that draws a crowd whenever it reports. The shares have fallen from a 12-month high near 1,550p to around 1,050p. Rates, affordability and shaky buyer confidence have pressed on the whole sector, with some peers cutting dividends to the bone.
Here is what caught our eye. Persimmon now trades below the accounting value of its own land, the cheapest it has been relative to book in more than a decade, while quietly remaining the highest-margin volume builder in the sector and posting a completions recovery most of its rivals cannot show. The market is pricing a prolonged downturn. We think it is looking at the wrong things.
Over the rest of this piece we set out the full case: how the shares fell so far, why the balance sheet and the in-house manufacturing operation set Persimmon apart from every listed rival, how it stacks up against the field, what the new government means for the sector, and the valuation and risks that decide whether this is a floor or a trap.
What sets Persimmon apart comes down to the quality of the business: balance sheet strength, land bank economics and disciplined build volumes, rather than sheer output. The shares have had a rough time, but they simply haven’t fallen as far as some peers, and that relative resilience is not an accident. As CEO Dean Finch put it on the full-year results call, “I believe we’ve emerged from this period a stronger, more agile business that’s well-positioned to seize future opportunities.”
As value investors, our interest sits exactly where the price has come down to. When a whole sector is out of favour and a quality name gets dragged down with it, that is often where the opportunity hides. Or as Warren Buffett put it, “be fearful when others are greedy and greedy when others are fearful.” At these levels, Persimmon warrants a proper look, and that is what this piece sets out to do.
1. How Persimmon got here
To judge whether 1,050p is cheap, it helps to remember what this business looked like at the top. At its 2018 peak Persimmon earned north of £1bn in pre-tax profit on new-housing gross margins above 33%, numbers that made it the highest-returning builder in the sector and the source of some of the largest capital-return dividends the market had seen, 235p a share in 2019 alone. The shares topped out at 3,160p in May 2021. From there to today is a fall of around two thirds.
The unwind came from several directions at once. The 2022 mini-budget sent gilt yields and mortgage rates sharply higher, and buyer demand thinned almost overnight. The end of Help to Buy in 2023 removed a prop that had mattered more to Persimmon than most, given its first-time-buyer skew. Completions fell from 16,449 in 2018 to 9,922 in 2023, and the dividend was reset from those bumper payouts down to 60p. Post-Grenfell building safety remediation piled hundreds of millions of further cost onto the sector at the same time.
