Persimmon Declines After UBS Valuation Downgrade: London Mover

Persimmon Plc, the best-performing U.K. housebuilder this year, fell the most in more than five weeks after UBS AG downgraded the stock, saying competitors stocks have more potential to gain from catalysts such as rising house prices and government mortgage guarantees.

The shares dropped as much as 4.7 percent, the biggest decline since April 22, and were down 2.9 percent at 1,189 pence at 12:50 p.m. in London. The volume of shares traded was 40 percent more than the three-month daily average. The decline contributed to a three-day drop of as much as 8.8 percent, the most in a year. Persimmon was the worst-performer among the nine companies in the Bloomberg EMEA Home Builders Index.

“Looking at various valuation methods, we do not see compelling upside,” Benjamin Rosenberger, a London-based analyst at UBS, wrote in a note to clients cutting his rating to neutral from buy. “Operationally, Persimmon remains the strongest housebuilder. However, we now believe others e.g. Bellway and Taylor Wimpey offer more upside.”

Persimmon, the largest U.K. housebuilder by market value, has returned 59 percent, including reinvested dividends, to investors this year compared with 53 percent for Barratt Developments Plc. The Bloomberg EMEA Home Builders Index has returned 38 percent.

Housebuilders have benefited from plans announced by Chancellor of the Exchequer George Osborne in March. Osborne pledged 3.5 billion pounds ($5.3 billion) in loans plus 130 billion pounds of guarantees to help revive the housing market.

Halifax Report

U.K. house prices rose to the highest in almost three years in April, according to a report this month from mortgage lender Halifax. House prices increased the most in 18 months on an annual basis in May as the recovery in the market for residential property gained momentum, Nationwide Building Society said yesterday.

Persimmon said last year it planned to return 1.9 billion pounds of capital to investors by 2021. Last month the company said it was ahead of schedule.

Rosenberger raised his 12-month price target for the stock

7.2 percent to 1,260 pence and increased his earnings estimates for this year and next.

UBS added Bellway Plc to its most preferred list for European building industry stocks, saying it had underperformed the wider sector by about 25 percent over the past year. Bellway has returned 23 percent this year.