The Motley Fool

Should You Buy Persimmon plc Instead Of Taylor Wimpey plc, Bellway plc, Berkeley Group Holdings PLC And Barratt Developments Plc?

Today’s full-year results from Persimmon (LSE: PSN) are impressive and show that the company continues to make encouraging progress. For example, underlying profit before tax is up 44% versus 2013, with an increase in sales of 23% and a much higher underlying operating margin of 18.4% (versus 16% in 2013) having a major impact on the company’s bottom line.

Furthermore, Persimmon’s future also looks bright, despite there being understandable uncertainty regarding the General Election in May. For example, it acquired a further 26,822 plots of land in 2014 and has generated forward sales of £1.49bn, which is an increase of 5% on 2013’s figure.

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And, as evidence of Persimmon’s strong performance and its optimism regarding the medium to long term prospects for the business, the next instalment of its capital return plan will take place on 2 April rather than 6 July, with 95p per share (5.7% of its current share price) due to be returned to shareholders.

Sector Peers

Looking ahead, Persimmon is forecast to increase its bottom line by 17% in the current year, and by a further 13% next year. Given that it trades on a price to earnings (P/E) ratio of just 11.4, this indicates that it offers very strong growth prospects at a highly appealing price, since it has a price to earnings growth (PEG) ratio of just 0.7.

However, there is also great value elsewhere in the house building sector. That’s because the likes of Taylor Wimpey (LSE: TW) and Bellway (LSE: BWY) are also in the midst of strong profit growth and, like Persimmon, trade on very appealing PEG ratios of just 0.7 and 0.8 respectively.

Likewise, Berkeley (LSE: BKG) also has a relatively attractive PEG ratio of 1.1 and, while it could be hurt somewhat by an apparent slowdown in the price of prime London property (owing to the recent change in stamp duty), it still seems to be well-worth buying at the present time. Similarly, Barratt (LSE: BDEV) has a PEG ratio of just 0.5 which, based on a very upbeat forecast for the current year (its bottom line is expected to rise by 38%), it seems to be the best value of the five companies.

Capital Return

However, what separates Persimmon from its sector peers is the appeal of its capital return plan. Certainly, this is not unique, but it means that Persimmon is set to return at least 475p per share over the next six years. This works out at 79.2p per year, which equates to an annual dividend of 4.8%.

And, with a number of the payments likely to be higher than are currently pencilled in (especially if interest rates remain low and trading conditions remain buoyant), Persimmon could prove to be an excellent income, growth and value play.

As such, and while the likes of Taylor Wimpey, Bellway, Berkeley and Barratt are also great stocks, Persimmon still seems to be the pick of a highly lucrative sector for long term investors.

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Peter Stephens owns shares of Bellway, Persimmon, Berkeley and Taylor Wimpey. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.