Persimmon The Top Pick Among Undervalued UK Housebuilding Stocks2 Jul 2025 08:34
MORNINGSTAR - 25 JUNE 2025
Persimmon The Top Pick Among Undervalued UK Housebuilding Stocks
UK homebuilders offer 40% upside on average to fair value estimates.
Key Takeaways
Over the longer term, UK house prices are estimated to grow by 3.3% annually.
The UK government’s spending pledges on affordable housing are a net positive for UK housebuilders.
The UK’s population is expected to reach 73.6 million by mid-2034, creating a sustained demand for housing
Morningstar anticipates an underlying demand for new construction of an average of 260,000 homes annually over the coming decade.
The housing market remains in the early stages of a cyclical recovery, led by modest house price growth, recovering mortgage approval figures, and resurgent sales activity on homebuilder development sites.
The continued recovery in UK house prices is conducive to our outlook for UK homebuilders; house price evolution generally acts as a leading indicator of housing construction activity. Rising house prices also offer much-needed relief to homebuilder profit margins, which remained under substantial pressure in 2024.
Key Morningstar Metrics for Persimmon PSN
Analyst: Jack Fletcher Price
Morningstar Rating: ★★★★★
Fair Value Estimate: GBX 2300.00
Forward Dividend Yield: 4.55%
Sector: Consumer Cyclical
Persimmon offers investors the greatest leverage to a recovering UK housing market, in part because it was the most affected among the peer group by the soured UK housing market conditions of 2023. Persimmon is particularly exposed to lower-value housing and first-time buyers, representing some 50% of its sales.
Owing to ongoing housing affordability concerns and a government targeting increasing homeownership rates, we think Persimmon is best placed to capitalize on this opportunity. Despite shares having rallied 28% since April 9, Persimmon’s shares trade at a significantly depressed price/book multiple of 1.2 times versus an average of 2.3 over the prior housing cycle. At current levels, Persimmon’s stock price fails to factor in any material cyclical earnings recovery, which we see as highly likely given the rewarding decade ahead for the major UK homebuilders.
Housebuilding Stocks Under Morningstar Coverage Are Undervalued
Since April 9, the five homebuilders covered by Morningstar have rallied on average of 25%, with Bellway BWY leading the pack with a 36% gain. However, Persimmon PSN is Morningstar’s top pick for exposure to homebuilders.
Opportunities still exist broadly across our coverage with all UK homebuilders we cover trading at discounts to our fair value estimates.
Https://global.morningstar.com/en-gb/stocks/persimmon-top-pick-among-undervalued-uk-housebuilding-stocks
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