UBS and Peel Hunt back Persimmon's focus on quality
By Abigail Townsend
Date: Thursday 04 Jul 2019
(Sharecast News) - UBS and Peel Hunt have maintained their recommendations on Persimmon, as the house builder looks to improve its battered reputation.
The FTSE 100 housebuilder, which came in for severe criticism last year over the vast salary paid to its former chief executive, has developed a reputation for poor building quality and customer service, with its three-star House Builders Federation rating one of the lowest.
However, under new chief executive Dave Jenkinson, the company is looking to overhaul its reputation. It has put in place a number of initiatives, including introducing a customer retention programme and selling properties at some sites at later stages of the construction process.
That caused the number of completions to fall in the first half, to 7,584 from 8,072 a year earlier, which in turn depressed revenues, which slipped 5% to £1.75bn.
But analysts have largely welcomed the shift towards improved quality, despite the fall in revenues.
Peel Hunt, which has a 'hold' recommendation Persimmon and a price target of 2,025p, said: "This has resulted in fewer sales in the first half and a build-up of inventory.
"This increase in build and slower releases is likely to result in a bigger skew to second half sales, completions and profit in previous years. This obviously carries an incremental risk in terms of market - especially Brexit - conditions.
"Overall, we see limited change to forecast at this point, but with a mix shift of slightly lower volumes being offset by slightly higher margins.
"The shares have struggled during 2019 as a result of the problems the group has had with build quality and the measures it had to put in place. To date they are up 2%, while the sector is up 12% and its two biggest peers, Barratt Developments - +25% - and Taylor Wimpey, +18%, have materially outperformed."
For their part, UBS, which has a 'buy' recommendation and a price target of 2,650p, said: "While volume shortfall will likely lead to some modest consensus earnings per share reductions, we think the shares are discounting a much more dramatic reduction in profitability.
"Key in restoring confidence is fixing the customer care issues, ideally by improving the HBF score to four-star status as soon as possible."
As at 1430 BST, shares in Persimmon were largely flat, off 16p at 1,971p.
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