24th Feb 2016 10:42
LONDON (Alliance News) - UBS and Numis upgraded Persimmon to Buy and Hold, respectively, after the group announced on Tuesday an acceleration of its capital returns programme, following a very strong year for the UK housebuilding industry.
The housebuilder said it will return 110.0 pence per share to shareholders, a huge rise on the 10.0p per share it had been planning previously.
Following the upgrades, shares in Persimmon were at the top of the FTSE 100, up 2.0% at 2,070.00p Wednesday, having already added 2.8% on Tuesday.
UBS said that while Persimmon has raised its annual payout for the next six years, meaning a 5.4% yield on the current share price, the bank's free-cash-flow forecasts for the company implies the ultimate payout could be closer to 190p per year, "which would imply still a very compelling 9.3% yield on average".
UBS said this assessment assumes the business consumes a net GBP1 billion into capital employed over the next six years and a GBP500 million cash "buffer" is retained "in order to provide flexibility in what is a cyclical sector".
The total value of Persimmon's capital return programme has been increased 45% to GBP2.76 billion, up from the GBP1.90 billion it had outlined back in 2012. Cash generation for the group, pre-capital returns, rose to GBP483.0 million in the year, up from GBP388.0 million.
This will leave 550p per share to be paid over the last five years of the capital return plan to 2021. Persimmon is currently intended to deliver this value in equal instalments over the remaining five years of the plan period commencing in 2017.
UBS noted that Persimmon's financial metrics "continue to be outstanding and are, alongside peer housebuilder Berkeley, sector leading "by a considerable margin".
The bank upgraded the housebuilder to Buy from Neutral, lifting its price target to 2,330p from 2,135p. Goldman Sachs lifted its price target on the company to 2,280p from 2,200p, keeping a Neutral stance, and Numis upgraded it to Hold from Reduce, with a price target of 2,200p.
Numis said the Persimmon results were "comfortably ahead" of the broker's forecasts.
Persimmon said its pretax profit for the year to the end of December was GBP637.8 million, up from GBP475.0 million a year earlier. That was well ahead of Numis's expectations of GBP596.7 million.
"In our view this was a solid update and the increase in the cash return is substantial and can be achieved in a risk averse manner," said Numis analyst Chris Millington.
Persimmon's next trading update is expected to be released on April 14.
By Daniel Ruiz; [email protected]
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