Jefferies backs Persimmon as ’Top Pick,’ sees valuation upside for UK builders

Investing.com -- Jefferies said it sees valuation upside for UK housebuilders ahead of the government’s November budget, naming Persimmon as its top pick in the sector.

The brokerage in a note dated Wednesday said the sector is “trading at 83% of 2026 NTAV, UK Housebuilders offer a meaningful valuation opportunity.”

Jefferies said that while the budget brings risks around UK yields, “the ‘blitz’ of housing policy promised in the ‘coming weeks and months’ by the new Housing Secretary… should reignite confidence in the medium-term upside in sector earnings and capital returns.” 

The brokerage said Persimmon “remains our top pick,” citing its “some of the greatest operational leverage to volume upside” and margins “well ahead of peers.”

The brokerage set a base-case price target of 1,790p for Persimmon, reflecting a 55.7% upside from its current share price. 

The stock’s valuation is based on 1.55x 2027 estimated price-to-net tangible asset value (NTAV), adjusted using a 10% discount rate on both NTAV and dividends. 

Jefferies said the higher earnings before interest and tax (EBIT) and return on capital employed (ROCE) Persimmon could generate represent “a greater opportunity” for investors.

According to Jefferies forecasts, Persimmon’s revenue is projected to rise from £3.67 billion in FY25 to £4.14 billion in FY27, with pre-tax profit increasing from £443 million to £634 million over the same period. 

EBIT margins are expected to improve from 12.5% in FY25 to 15.5% in FY27, while returns on capital employed rise from 13.9% to 17%.

Earnings per share are estimated to climb from 98p in FY25 to 141p by FY27, with dividends per share growing from 60p to 78p.

Jefferies said that affordability continues to improve and credit availability is stepping up, adding that “company web hits [were] improving through September.”

The brokerage expects “a bounce in reservation rates into 2026,” helped by cumulative rate cuts and relaxed lending rules from earlier in the year.

It said upcoming planning changes, expected to become law by the end of 2025, should “finally bring confidence to upward momentum in outlet numbers” and enable housebuilders “to refresh land bank margins.”

Jefferies noted that the predictability of the planning environment should allow “greater balance sheet efficiency” and “the potential for considerable capital returns to shareholders over the medium term.” 

It added that “clarity on the tax implications for individuals will be a clearing event for housebuyers,” following a period in which customers had taken a wait and see approach.

Across the sector, Jefferies maintained “buy” ratings on Taylor Wimpey, Bellway, Barratt Redrow, and Crest Nicholson. 

The brokerage said the housebuilders’ shares, priced at a discount to long-term net asset value, present a meaningful opportunity as policy clarity and affordability improvements converge.