Earnings estimates for Persimmon (LON:PSN) have been upgraded by J P Morgan after the house builder’s upbeat trading statement on Tuesday increased expectations over operating margin.
The bank has increased its pre-tax profit estimate for 2011 by three percent to £138 million, which is six percent ahead of consensus forecasts. Consequently, J P Morgan has also increased its price target to 518 pence (which represents around five percent upside to this morning’s share price of 492 pence), although the bank said that it continues to see greater value elsewhere in the sector and is retaining its ‘neutral’ stance on Persimmon.
“Operating margin progression appears to be coming through at a slightly faster rate than we had anticipated,” said J P Morgan, which had previously forecast a financial year 2011 operating margin of 9.1 percent. At the start of this year, Persimmon stated that the margin was around 8.4 percent, while the average margin for the first half was around nine percent with the group providing guidance of similar margin progression in the second half.
“We therefore now forecast a [second half] margin of 9.5 percent,” added the bank, which said it was continuing to forecast a 2012 margin of 10.1 percent for Persimmon.
J P Morgan also said that it remained “comfortable” with its 2011 ‘average selling price’ estimate of £171,000. “We expect some decline in ASP towards the end of the year, given that the ‘first buy’ shared equity scheme should start impacting sales in Q4 and generally relates to lower ASP properties,” it said. “However, even accounting for a decline back towards current levels towards the end of the year, the current strength of ASP in the order book means we remain comfortable with our [2011] estimate of £171,000.”