Persimmon is attractive unless economy gets dire, Canaccord says

22nd Aug 2018 09:52

(Sharecast News) - Persimmon shares are attractive unless investors believe the UK's macroeconomic prospects will deteriorate badly, Canaccord Genuity said. Keeping its 'buy' rating on the housebuilder's shares, Canaccord said Persimmon was in a favourable part of the housing market with relatively low asking prices and lack of exposure to central London. Management is also doing an impressive job of leading the sector on margins and delivering high returns.Risks for Persimmon are therefore based on economic and political factors rather than the company's own management and strategy, Canaccord said. The broker trimmed its price target for Persimmon to 2,870p from 2,950p, with the shares standing at 2,444p."The risk reward ratio for the shares looks tempting unless one takes a very bearish view of the UK macro outlook in 2019. If the housing market holds up, there is more upside potential in margins and capital returns are likely to increase, making the current dividend yield look even more attractive," Canaccord's Aynsley Lammin said in a note.Asking prices would have to fall 15% or volumes would have to halve to threaten Persimmon's implied dividend cover of 1.2 times earnings, Lammin said.Persimmon's 110p of dividend per share looks sustainable and implies a yield of 4.5%, Lammin said. Persimmon's interim results on 21 August were very strong and comments on recent trading were moderately encouraging, he added."Management is being sensibly cautious on the macro outlook, but recent trading does not appear to have seen any significant change in the supportive trends and it continues to buy land and see more upside in margins."