Deutsche Bank Upgrades Persimmon to Buy After Strong First-Half Results

Deutsche Bank has upgraded Persimmon Plc (LON: PSN) to “buy” from “hold” following recent weakness in the UK homebuilder’s share price, while slightly lowering its price target to 1,403 pence from 1,419 pence.

The upgrade comes after Persimmon reported stronger-than-expected first-half fiscal 2026 results. Underlying operating margin reached 12.8%, comfortably above the 11.7% analyst consensus, helping Persimmon shares gain 2.6% following the results. The company completed 5,189 homes, representing 13% year-on-year volume growth.

Deutsche Bank analyst Chris Millington described the results as “robust.” Higher volumes helped counter 210 basis points of gross margin pressure, allowing underlying pretax profit to increase 3% year over year.

Persimmon ended the period with £165 million of net debt, largely reflecting land creditor payments, while return on capital employed stood at 11.3%.

For fiscal 2026, Persimmon maintained its guidance and is targeting 12,500 home completions, the top end of its previous 12,000-12,500 range. The housebuilder expects underlying operating profit of £491 million and underlying pretax profit of £454 million, with year-end net debt or cash of around £100 million.

The company also announced a 20-pence-per-share interim dividend. Management plans to prioritize investment for growth while considering dividends and share buybacks when excess cash is available.

Recent trading remained resilient, with sales per site per week increasing 6% year over year to 0.72. Persimmon also remains on track to open about 100 gross outlets this year and aims to operate at least 300 outlets by 2027.

However, build cost inflation of 3%-4% could add £40 million to £50 million in costs over the next 18 months. Persimmon aims to offset at least half of this pressure through savings initiatives in 2027.

Deutsche Bank reduced its Persimmon pretax profit forecasts by 3% for 2026, 13% for 2027 and 14% for 2028. Despite these cuts, the bank expects Persimmon’s profits to remain broadly stable through 2027 and forecasts an average return on equity of about 9% between 2026 and 2028, supporting its positive investment rating.