Here’s why Persimmon shares could be the FTSE 100’s best buy

Persimmon shares are down 50% in five years. But on the back of H1 results, it looks like 2023 could turn out to be better than expected.

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It’s hard to pick the best shares to buy in the Footsie, as there are so many good ones. But I reckon Persimmon (LSE: PSN) shares are in with a shout.

H1 results were pitched against a “backdrop of higher mortgage rates, the removal of Help to Buy and significant market uncertainty,” in the words of chief executive Dean Finch.

But the market reacted well, and the Persimmon share price rose a few percent on results morning.

Past the worst?

I reckon interest rates can’t be far from their peak. And after that, they have to come down, right?

As far as investor sentiment goes, we could now be past the worst. In an ideal world, there should be no such thing as short-term sentiment, mind.

We’d all choose stocks for their long-term potential, based on likely future cash flows, and wild share price ups and downs would be history.

Long-term outlook

But in reality, sentiment gives long-term investors a leg-up. It gives us periods when we can buy good long-terms stocks cheap. And Persimmon does look good.

The CEO went on to speak of “a private forward order book that is now 83% higher than it was at the beginning of the year.” I find that impressive.

Lower sales in the first half did impact margins. But that was expected, and the company now thinks margins will start to rise again in the second half.

First-half sales

New completions in the half dropped to 4,249, from 6,652 the previous year. That’s down 36%, which isn’t nice. But it’s better than my worst fears.

And with the order book up, the full-year could look quite a bit better.

In fact, the board now expects full-year completions to reach at least 9,000, at the top end of previous guidance.

Earnings per share (EPS) did drop to about a third of the H1 figure from last year, down at 34.4p from 106.5p. But staying in profit in a year that’s seen the biggest drop in demand for decades is fine by me.

House prices

A healthy average selling priced helped, actually up 4% from last year.

But the effects from the falling property market won’t have fed through yet. And that has to be one of the key risks going in to the second half.

I think the other main risk is that optimism over interest rates might be a bit premature.

If we don’t see the hoped-for improvements as we get closer to the end of the year, investors could turn away and send Persimmon shares down again.

Cash counts

At 30 June, Persimmon had £0.36bn in cash on the books. That’s about half what it was at the same point in 2022. But it’s still a good buffer in such a tough year for the industry.

And, in another positive sign, the firm posted an interim dividend of 20p per share.

There’s a forecast ordinary dividend yield of around 5.5% now, and that will do me.

The FTSE 100‘s best or not, Persimmon shares are in my top five for my next buy.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has positions in Persimmon Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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