Broker snap: Persimmon's cash return is a game-changer, says Peel Hunt

28th Feb 2012 10:34

While house-builder Persimmon's results appeared to be broadly in line with expectations, shares surged on Tuesday on new of a cash return worth 1.9bn pounds over the next nine and a half years, something that Peel Hunt has called a 'game-changer'."The decision to pay out 620p of surplus capital and cash flow is a game-changer. It shows a far more disciplined approach to the cycle and means that Persimmon will not be drawn back into a destructive volume spiral," said Peel Hunt analyst Robin Hardy."We cannot easily see this being funded by cash flow, so there will almost certainly be some dissolving of the balance sheet, which will make equity valuation more difficult," he said.While the broker admits that valuing the equity today is tougher, "as the ultimate scale of business and balance sheet through this process is still unclear", it does see grounds to be more positive on the stock, and puts its rating under review.Peel Hunt says that the cash return shows that Persimmon is not going to bid for sector peer Bovis Homes.Meanwhile, analysts at Panmure Gordon said that the the cash return "is likely to be well received by investors and our recommendation and target price are therefore under review for now."BC