Persimmon weakness a buying opportunity ahead of update, says JPM

Housebuilder Persimmon rallied on Thursday as JPMorgan Cazenove argued that recent weakness provides a buying opportunity ahead of trading update next week, which it expects to be a positive catalyst, and said it was still its "top idea" in the UK housebuilding sector.

The bank noted that Persimmon’s share price has outperformed the UK housebuilding sector by 23% year-to-date, but has lagged the sector over the last two months.

"In our view, this presents a buying opportunity ahead of the trading update next week, with the group’s valuation on 8.8x 2021E adjusted price-to-earnings, at a discount to the sector average of 10.2x and its historical average of 10.5x."

It lifted its adjusted pre-tax profit forecast to £860m from £820m previously, putting it 2% ahead of consensus.

JPM’s expectations for the update next week are an upgrade to conservative guidance, reinstatement of the remainder of the 2019 dividend and some moderation yet a solid trend in the sales rate, which had significantly improved over the summer.

JPM rates Persimmon at ‘overweight’ with a 3,210p price target.

At 1225 GMT, the shares were up 2.5% at 2,529p.