Persimmon share price analysis as Warren Buffett scoops US builders

August 15, 2023 02:00 AM PDT | By Invezz

Persimmon share price analysis as Warren Buffett scoops US builders — Image source: Invezz

UK house sector woes

The UK housing sector is going through major headwinds as the cost of living crisis escalates and as interest rates remains at an elevated level. The average two-year fixed mortgage rates are at 6.8%. In a statement, the Bank of England warned that rates could double and stay high for a while.

This explains why house prices have dropped in the past few months. In a recent report, data by Nationwide showed that UK house prices fell at the steepest pace since 2009. Another report by Halifax revealed that prices have dropped in the past four straight months.

There is a likelihood that the Bank of England will continue pushing rates higher for a while. Data published by the Office of National Statistics (ONS) showed that average earnings plus bonuses rose by 8.2% in June, higher than the median estimate of 7.3%.

Excluding bonuses, average earnings rose by 7.8% in June after growing by 7.5% in May. Earnings are an important part for the Bank of England since it has an impact on inflation.

The most recent data showed that Persimmon completed 4,249 in the first half of the year, down from 6,652 in the same period in 2022. It benefited from higher home prices as the average price jumped from £245k to £256k. As a result, its revenue dropped to £1.19 billion while profits fell to £151 million.

Warren Buffett is investing in US housebuilders

A likely catalyst for Persimmon is the latest moves by Warren Buffett. In his disclosures on Monday, Buffett said that he invested in the biggest American builders like Lennar, DR Horton, and NVR Corp.

Like Persimmon, these companies are facing a slowing real estate industry as mortgage rates remains at the highest level in more than a decade.

However, American housebuilders stocks have jumped this year because of rising demand, falling inflation, and higher prices. Lennar, DR Horton, and NVR shares have all jumped by more than 30% this year.

These moves by Buffett means that some investors could attempt to buy British housebuilders like Persimmon and Taylor Wimpey. For example, Lennar Corp has a PE ratio of 8.5x while Persimmon has a multiple of ~5x.

The post Persimmon share price analysis as Warren Buffett scoops US builders appeared first on Invezz.

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