FTSE 250 Index home builder Kaki (LSE:PSN) seems to me that it could be in the right place at the right time to make a lasting recovery.

FTSE 100 Down

He was demoted from FTSE100 in August last year followed a 65% fall in underlying operating profit in H1 2023 compared with H1 2022 – to £152.2m. There was also a 36% fall in up-to-date home completions during the period to 4,249.

However, at this point interest rates have risen to 5.25% from a record low of 0.1% in December 2021. Mortgage rates have followed suit, reaching a 16-year high. And the Help to Buy home purchase scheme ended on 31 March.

Now, however, interest rates are expected to fall further, which will result in an augment in mortgage rates.

Real estate market outlook now

According to data from the independent think tank Centre for Cities, the UK is struggling with a housing deficit of 4.3 million, which is the European average.

The up-to-date government has committed to building 300,000 up-to-date properties per year for the next five years. So even without further increases in demand, the housing deficit will not be resolved for more than 14 years.

Therefore, the prospects for the leading British construction company seem very good to me.

A key risk for the company is that this planned construction program stalls. Another is a reversal of the recent trend of lower inflation and interest rates. This could cause another rise in the cost of living and depress the property market.

What does your core business look like now?

Persimmon’s underlying operating profit for the first half of 2024 was only slightly higher than the first half of 2023 at £152.3m. However, the number of up-to-date homes completed rose by 4.6% to 4,445 and total revenue rose by 11% to £1.32bn.

Based on these figures, the company is confident it can deliver around 10,500 homes this year. Its current private home order book is up 28% on the same period last year, to £1.12bn. And the average selling price of those homes is 2% higher.

Consensus analysts estimate that the company’s earnings will grow by 17% annually through the end of 2026. Earnings per share are expected to augment by 16.7% annually through that point. And return on equity is expected to be 12.1% through that time.

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Growing profits have driven the company’s share price and dividends higher over time. Persimmon paid a total dividend of 60 pence per share in 2023. This represents a yield of 3.5% on the current share price of £17.01 – above the FTSE 250 average of 3.3%.

Analysts are forecasting yields to rise to 4% in 2025 and 4.4% in 2026. While the share price has risen since the H1 2024 earnings announcement, it still looks low-cost to me.

Discounted cash flow analysis using other analysts’ data and my own shows it is undervalued by 43%. So a fair share price would be £29.84, although it could fall as well as rise.

Will I buy shares?

I want to see solid evidence that the government is following through on its housing plans before I buy a stock. As it stands, it’s on my watchlist for high-potential stocks.