Broker snap: Persimmon's valuation 'full' despite robust Q1, says Jefferies

2nd Jul 2013 09:24

Jefferies has kept its 'hold' rating and 1,162p target price for UK house builder Persimmon despite an upbeat second-quarter trading update, saying that the stock's valuation looks 'full'.Nevertheless, analyst Anthony Codling said that the statement was "robust" and backed up its view that the government's stimulus plans of 'Help to Buy' and 'Funding for Lending' are working.Operating margins are expected to be around 15% by the end of the first half, up 280 basis points year-on-year, and while this is at the bottom of the range of the company's view of a normal market, "it appears we can see the edge of the woods", Codling said.Meanwhile, he said he's pleased to see Persimmon increasing the scale of its landbank - consented plots of 70,500 at June 30th, up from 68,200 in December - at the cyclical lows of the market ahead of a potential "heating up" of the land market."If 'Help to Buy' continues to work, sales rates are likely to increase, in our view, and it will be more expensive to buy land in 12 months time than it is today," he said.Nevertheless, the broker chose to remain cautious, highlighting that sector peers Barratt Developments, Bovis Homes and Taylor Wimpey (all rated 'buy') are trading at cheaper price-to-book multiples."Persimmon is a strong player in the market; however, we see greater value elsewhere in the sector."