Since the start of the war in the Middle East, many members of the FTSE 100 have seen their share prices tank. One that’s suffered more than most is UK housebuilder Persimmon (LSE:PSN).
The group’s now (6 April) worth around a quarter less than when the conflict started. Does this mean it’s a bit of a bargain? Let’s take a closer look.
Double trouble
I suspect there are two potential issues playing on the minds of investors, both of which are related to inflation fears.
With the oil price continuing to rise, most economists are now predicting that interest rates will have to be increased. This is quite a turnaround. Just over a month ago, a cut was expected. And although sometimes described as a bit of a blunt instrument, the Bank of England has few levers that it can pull to combat rising inflation.
Increasing the base rate is likely to have the desired effect of slowing price rises. But it’s also probably going to reduce the demand for mortgages. In turn, this is likely to slow the sale of Persimmon’s properties. Of concern, UK gilt prices are now at levels last seen when Liz Truss was briefly Prime Minister. This matters because it’s used as the benchmark for pricing mortgages.
And if that wasn’t bad enough, rising energy prices could lead to higher construction costs. Post-pandemic inflation has already affected the housebuilder’s margin. In 2025, it reported around £28,000 less operating profit per completion than it did in 2022. This is despite being able to raise its average selling price (ASP) by nearly £30,000.
This is particularly disappointing given that the group’s financial and operating performance was starting to improve.
In 2025, it built 1,241 (11.6%) more properties than it did in 2024. And it increased its earnings per share by 9.3%. Baby steps, perhaps. But nonetheless, the green shoots of a recovery were starting to emerge.
What now?
Personally, I think the recent pullback in the group’s share price means the stock has plenty going for it. Indeed, I think it could be one to consider for patient long-term investors.
Fundamentally, the UK housing market continues to experience a shortage of properties. And the government’s emphasis on encouraging more houses to be built through a series of planning reforms can only be to Persimmon’s benefit.
Critically, the group’s ASP is lower than its FTSE 100 peers. And despite its recent troubles, the group remains debt-free. It also has a seven-year supply of plots on which to build, many of which have already secured planning permission.
The stock’s now trading around 30% below its 52-week high and around 50% lower than the consensus 12-month target of analysts.
Great for income
And then there’s the group’s dividend. Its 2025 payout of 60p means the stock’s now yielding 5.5%. And when things start to pick up, I think there’s plenty of scope to increase this further.
With no debt and limited capital expenditure requirements, the group’s historically distributed nearly all of its profit to shareholders. Last year, it adopted a more conservative approach returning around 60%.
Despite current concerns, I think Persimmon remains in good shape. I reckon it’s one of many UK shares that seem to be in bargain territory at the moment and are worth a look.
