Stifel Taps Persimmon, MJ Gleeson as Top Housebuilder Picks Amid Takeover Interest

Analysts at Stifel have identified Persimmon and MJ Gleeson as their top picks in the UK housebuilding sector, suggesting the industry's low valuation makes it vulnerable to takeovers. The analysis follows a deal by Japan's Daiwa House to acquire a 30% stake in private UK housebuilder Miller Homes.

Takeover Potential Highlights Undervaluation

According to Stifel analyst Charlie Campbell, the Daiwa House transaction, reportedly valued at £400 million, underscores the potential for consolidation in the sector. The firm noted that UK housebuilders are currently trading at a significant discount, at approximately 0.7 times tangible book value on average.

This low valuation, Stifel argues, leaves UK firms susceptible to acquisition. The Daiwa deal valued Miller Homes at 2.4 times tangible gross asset value, a substantial premium compared to the publicly traded sector average. Stifel attributes Miller's high valuation to its strong returns, which are driven by its focus on partnerships and affordable housing.

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On fundamental grounds, Stifel named two companies that share the attractive characteristics seen in Miller Homes. The broker issued "Buy" ratings for both stocks, citing their strategic focus.

• Persimmon (PSN): With a price target of 1,169 pence, Stifel highlighted the company's exposure to the more affordable end of the housing market and a growing partnerships business.
• MJ Gleeson (GLEG): Stifel set a price target of 249 pence, noting its similar strategic positioning in affordable housing and partnerships.

Stifel pointed out that partnerships accounted for 22% of Miller Homes' completions and contributed to its pre-tax Return on Capital Employed (ROCE) of 27.5%, well above the sector average of 11%. This model is seen as a key driver of value and a blueprint for success in the current market.