Credit Suisse downgrades Persimmon, cuts targets for housebuilders

8th Jan 2015 11:07

Credit Suisse has downgraded its rating for Persimmon from 'neutral' to 'underperform', saying that the shares are overvalued, at the same time that it has cut its target prices for stocks across the UK housebuilding sector."There has been a lot to like about the Persimmon equity story in recent years, and we remain of the view that it is a quality operator. However, we believe valuations have reached a point that we cannot justify," said the bank's Harry Goad and Samuel Thomas.They said that valuations in the sector are 75% more expensive than their 20-year average, and Persimmon's premium to the sector has expanded to 25% from 10% historically.'We agree that there are reasons to justify why the sector warrants a premium of sorts relative to history given the positive changes in capital discipline, but we think the extent of the upward re-rating in both the sector and specifically in Persimmon has been overdone."At current valuations, the bank said that the market is being over optimistic by suggesting that the future return on capital employed (ROCE) over the industry will remain significantly higher than the past - "this is an argument that we do not fundamentally support".Credit Suisse has altered its valuation process for the housing sector and now places greater emphasis on tangible net asset value and less on earnings per share in its company forecasts. This has led to modest reductions in target prices for all stocks.Persimmon's target has been cut from 1,486p to 1,319p, Bellway's target has been cut from 2,066p to 2,062p, Barratt's target has been cut from 466p to 456p, Berkeley's target has been cut from 2,600p to 2,341p and Taylor Wimpey's target has been cut from 136p to 130p.All stocks except for Persimmon were still rated 'neutral'.Persimmon was down 0.8% at 1,529p by 11:41.