Pyad Likes Persimmon
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Persimmon
(LSE: PSN)
, the well-known housebuilder, has just released its results for the year ended 31/12/07. I've been keeping a value eye on some shares in this sector recently because of the voluminous amount of bad news over the last year or so that has demolished their share prices.
As experienced value players will be aware, repeated bad news for a sector or share can be good news for us. This is because the poor sentiment created will sometimes drag down otherwise good shares, leaving them poised for recovery once the market decides they are too cheap.
Just like investors and analysts, financial journalists who select the news to publish are mostly followers, not leaders. In other words they are merely human whereas the value investor has to be inhuman, not a follower. It is not easy to change one's species.
The difficulty is that we cannot know when the market may make that turn-round decision or how much further prices will fall. The game would be far too easy otherwise. It's happened often to me that I've seen a share or sector as very cheap, screaming value, then bought in only to find it has gotten much cheaper still. One just cannot call the exact bottom and sometimes we can be way off.
So are housebuilders in general and Persimmon in particular near the bottom? I'm now leaning that way. Always a risk of course, but then I wouldn't be here if shares were not risk investments. Let's look at the fundies first:
Share
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Persimmon
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Website
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Persimmonhomes.com
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Mkt Cap
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£2.3bn
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Share price
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779p
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52 wk high/low
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1473/645p
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EPS y/e 31/12/07
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136.8p
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Dividend y/e 31/12/07
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51.2p
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Net tangible assets 31/12/07
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621p
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Net debt 31/12/07
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£724.3m
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Gearing to total net assets 31/12/07
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31%
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Gearing to tangible assets
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39%
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Historical P/E
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5.7
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Historical yield
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6.6%
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Price/tangible book
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1.25
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Forecast EPS 31/12/08
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105.8p
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Forecast dividend 31/12/08
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53.4p
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Forecast P/E
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7.4
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| Forecast yield |
6.9%
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Not a pyad share then for two reasons, it trades over tangible book and it has debt. P/E and yield though are attractive. However earnings per share (eps) is expected to fall to 105.8p in 2008 according to consensus forecasts, and then to fall a little further to 100.5p in 09, for what it's worth.
Buying into falling eps is not usually a good thing, you want to jump on a moving train, not in front of it. But the directorspeak in the latest results from Persimmon as I read it is not as crushing as the sentiment and forecasts surrounding this industry suggest.
This is a case where if an investor wishes to go in, he/she must bet against the forecasters. Have they got it right? Remember that analysts making forecasts are, like humans in general, mainly followers not leaders. Gloom promotes gloom, just as boom promotes boom, and it takes balls to stick your head above the parapet, a nicely mixed physiological metaphor which I'm proud to have just coined.
I think Persimmon's share price is being run by emotional gearing right now.
What I mean is that what matters more than the actual figures are the feelings of investors towards housebuilding. It's at such a low ebb, there's been such a lengthy period of poor news, that it won't take much to rocket housebuilders in general and Persimmon in particular. When is that coming? I dunno but if this share hangs around this level or better still, falls back again, I might be buying a few as a value play in the coming days.
More: New House Prices Holding Up, But.....
