UBS downgrades Persimmon, but sees potential for accelerated capital return
After a strong run in Persimmon's share price, UBS has downgraded its rating on the housebuilder from 'buy' to 'neutral'.
FTSE 100
8,213.49
16:59 03/05/24
FTSE 350
4,515.50
16:54 03/05/24
FTSE All-Share
4,469.09
17:14 03/05/24
Household Goods & Home Construction
13,389.34
16:54 03/05/24
Persimmon
1,366.50p
16:40 03/05/24
The broker doesn't see the stock heading much higher after a 20% jump over the past year.
Returns at Persimmon are "sector-leading" at a 30% pre-tax return on capital employed in 2014, while strong free cash flow conversion, and in effect dividends, will likely prevent much downside, UBS said.
However, with the shares trading at 11.5 times estimated earnings for 2015 (a 15% premium to the sector) and a 2.5 times tangible net asset value (a 40% premium), the bank said: "We do not see sufficient upside to the shares".
Despite the downgrade, the stock was up 0.7% at 1,658p by 11:20 on Thursday, as UBS lifted its target price for the shares from 1,640p to 1,725p.
UBS said that Persimmon has the potential to accelerate its capital return plan to investors.
Since 2013, the company has returned 240p out of the 620p planned capital return plan by 2021, but UBS predicts the group will have returned this amount by 2018-2019.