I’m on the hunt for a great-value UK stock with bags of recovery potential. Have I found it in FTSE 100 housebuilder Persimmon (LSE: PSN)?
Like the rest of the sector, Persimmon has had a tough decade. Brexit knocked the stuffing out of housebuilders in 2016. High mortgage rates, stretched affordability, the end of the Help to Buy scheme, stamp duty changes and the cost-of-living crisis have combined to pile on the pressure.
The result? The Persimmon share price hit a 10-year low in August last year. But here’s the thing: it’s now starting to recover.
FTSE 100 rebound
Investors can’t buy it at the absolute bottom any more, with the shares up around 12% over the last year. But I still think there’s plenty of value left.
The Bank of England has now cut interest rates six times, and although it paused in February, there are hopes of another cut in March. That said, I wouldn’t pin too much faith on rate cuts alone. Inflation is proving sticky, and while it’s expected to keep falling in the UK, there’s always the risk we import it from elsewhere, say, the US.
Affordability remains stretched, stamp duty is high, first-time buyers are getting older, and higher labour costs are squeezing margins. Yes, there’s a housing shortage, but that doesn’t help much if people can’t afford to buy.
Persimmon did deliver some good news on 13 January. The board said it expects annual earnings to come in at the upper end of forecasts, with underlying profit before tax of £415m to £440m in 2025.
Home completions beat expectations, rising 12% to 11,905, while average selling prices were up 4%. Persimmon also boasts a “robust order book” and reported an encouraging start to 2026. But let’s not get carried away. Management warns it’s “not expecting any material improvement in market conditions this year”. It still expects profits of between £461m and £487m across 2026 though, but any shortfall could be punished.
On the way back?
Here’s another concern. I wouldn’t call Persimmon shares cheap exactly. The price-to-earnings ratio is 15.2, although that’s forecast to dip to around 13.5 in full-year 2026. Dividends have been patchy. In 2022, the board slashed the total dividend by 75%, from 235p to 60p per share. It’s since been frozen at 60p in 2023 and 2024.
Today, the shares offer a trailing yield of 4.3%, forecast to rise to around 4.7% in 2026. That’s not a barnstorming return, especially compared with housebuilder Taylor Wimpey, which yields around 8.8%. I hold that in my SIPP and its shares have fared worse than Persimmon over the past year, down 8%.
I think Persimmon is worth considering today. There’s a strong potential recovery story here, but I also expect the ride to be bumpy as the UK economy struggles and inflation continues to menace.
Is this a once-in-a-decade opportunity? I think so. But it may take a few years for Persimmon to really prove its worth. Yet that’s usually the case with shares, and why investors should always buy with a long-term view.
