28 May 2024
If you are covering the news about Persimmon weighing up a bid for housebuilder Cala Group, please find below a comment from Oli Creasey, property research analyst at Quilter Cheviot:
“Persimmon has been reported to be exploring a bid for Cala Group, the homebuilder being put up for sale by Legal & General, ahead of the deadline next week.
“Cala Group is quite a different housebuilder to Persimmon’s existing operations. While Persimmon currently focuses on the affordable end of the market (average sale price is £285k), Cala operates at a much higher price point (£495k), c. 75% higher than a typical Persimmon home. That might offer Persimmon an opportunity to move into a previously untapped segment of the market, however it does come with risk. Persimmon has built up a highly profitable business at the lower end of the market, and has limited experience running a business like Cala. We might expect that such an acquisition would erode the company’s operating margin down a level more typical for housebuilders generally.
“Articles from March 2024 suggested a price tag of c.£750m, so Persimmon potentially paying £1bn is good news for L&G. It also seems fairly attractive for Persimmon, as it suggests a P/E ratio for Cala of c. 12x (well below the industry average of 15-16x). However, there is also the question of how Persimmon would afford the transaction – management have previously stated that it expects the company’s cash balance to run close to zero, and we know they aren’t in the habit of operating at a significant net debt position, suggesting an equity raise could be on the cards if the deal goes ahead.
“The mooted acquisition is an interesting idea for Persimmon, and opens up new markets for the company, but comes with significant risk, both the acquisition, and the subsequent integration.”
