13th Jan 2022 17:41
(Alliance News) - Housebuilder Persimmon PLC's share price struggle following a new UK cladding policy earlier this week was excessive, analysts at Liberum said on Thursday.
The broker said markets have priced in "a far worse outcome than seems likely". Liberum rates Persimmon at Buy with a 3,440 pence price target.
Persimmon shares closed 0.5% lower at 2,608.00p each in London on Thursday. The stock has fallen 6.7% so far this week.
Developers in the UK must agree a GBP4 billion plan to fix dangerous cladding on low-rise flats by early March or risk new laws forcing them to act, Housing Secretary Michael Gove said on Monday.
The Cabinet minister threatened that he is "prepared to take all steps necessary" to fix the "broken system" in a letter to the industry ahead of detailing the plans on Monday.
Analysts at Liberum commented: "News that the government is seeking a further contribution from developers to cover the cost of improving the fire safety of high-rise residential buildings is weighing on the sector. The housebuilders' shares are now 8% off their level of last week, which looks to us as if almost all of the worst case has already been discounted."
A worst case scenario is that the listed housebuilding sector fronts up all the GBP4 billion, the broker said.
Liberum does not think this is a "plausible" outcome, however. Liberum said GBP4 billion may overstate the true cost. The government could also turn to non-listed housebuilders and also manufacturing and cladding installation firms to contribute.
Liberum added: "We note that the housebuilders are all in agreement with the idea that leaseholders should not pay for fire-safety remediation work. They have also made the reasonable point that the eventual solution to this problem should be proportionate. On this we note that Persimmon has identified the cost of remedying 26 buildings that it constructed at GBP75 million, and yet it is already set to contribute around GBP500 million, even before the additional contribution sought from government. To this observer, housebuilders are already being asked for a contribution to solving this problem that stretches a reasonable view of proportionality."
By Eric Cunha; [email protected]
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