eyeQ: more green shoots for UK property stocks?
interactive investor has teamed up with the experts at eyeQ who use artificial intelligence and their own smart machine to analyse macro conditions and generate actionable trading signals. This is what it says about a FTSE 100 housebuilder.
11th April 2024 10:59
by Huw Roberts from eyeQ
Share on
"Our signals are crafted through macro-valuation, trend analysis, and meticulous back-testing. This combination ensures a comprehensive evaluation of an asset's value, market conditions, and historical performance." eyeQ
- Discover: eyeQ analysis explained | eyeQ: our smart machine in action | Glossary
Persimmon
Trading signal: long-term strategic model
Model value: 1,187.20p
Fair Value Gap: +6.45% premium to model value
Model relevance: 92%
Data correct as at 11 April 2024. Please click glossary for explanation of terms.
More green shoots for the UK housing market! This morning’s Royal Institute of Chartered Surveyors (RICS) report was the most upbeat in 13 months. Property surveyors are talking about the housing market having now stabilised and are seeing signs that activity can pick up over the second half of 2024.
So far, so good. This is “real-life” evidence from the ground level – surveyors reporting on the conditions they are experiencing first hand. The survey has a strong track record of capturing the pulse of the UK property market.
A word of caution, however. From a macro perspective the key point is something the survey itself emphasises. It is the idea the Bank of England will be cutting rates that is a critical part of that more optimistic outlook.
On eyeQ, Persimmon (LSE:PSN) is the homebuilder with the highest macro relevance score (92%), meaning the stock is heavily influenced by big-picture dynamics.
And our model value (where the stock “should” trade given UK growth rates, the inflation outlook and more) has fallen 5.2% in the last month, thanks primarily to annoyingly resilient inflation expectations and high commodity prices. That combination is exactly the kind of thing that may prevent the Bank of England from cutting rates as much as the market hopes.
Persimmon is slightly rich (current share price above our model value) to our model (6.4%) as, thus far, it has ignored the deterioration in the macro picture. That’s not a big enough Fair Value Gap to trigger a definitive bearish signal. It is, however, enough to take the good news around RICS this morning with a pinch of salt.
Source: eyeQ. Past performance is not a guide to future performance.
Useful terminology:
Model value
Where our smart machine calculates that any stock market index, singe stock or exchange-traded fund (ETF) should be priced (the fair value) given the overall macroeconomic environment.
Model (macro) relevance
How confident we are in the model value. The higher the number the better! Above 65% means the macro environment is critical, so any valuation signals carry strong weight. Below 65%, we deem that something other than macro is driving the price.
Fair Value Gap (FVG)
The difference between our model value (fair value) and where the price currently is. A positive Fair Value Gap means the security is above the model value, which we refer to as “rich”. A negative FVG means that it's cheap. The bigger the FVG, the bigger the dislocation and therefore a better entry level for trades.
Long Term model
This model looks at share prices over the last 12 months, captures the company’s relationship with growth, inflation, currency shifts, central bank policy etc and calculates our key results - model value, model relevance, Fair Value Gap.
These third-party research articles are provided by eyeQ (Quant Insight). interactive investor does not make any representation as to the completeness, accuracy or timeliness of the information provided, nor do we accept any liability for any losses, costs, liabilities or expenses that may arise directly or indirectly from your use of, or reliance on, the information (except where we have acted negligently, fraudulently or in wilful default in relation to the production or distribution of the information).
The value of your investments may go down as well as up. You may not get back all the money that you invest.
Equity research is provided for information purposes only. Neither eyeQ (Quant Insight) nor interactive investor have considered your personal circumstances, and the information provided should not be considered a personal recommendation. If you are in any doubt as to the action you should take, please consult an authorised financial adviser.
Disclosure
We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here.
Please note that our article on this investment should not be considered to be a regular publication.
Details of all recommendations issued by ii during the previous 12-month period can be found here.
ii adheres to a strict code of conduct. Contributors may hold shares or have other interests in companies included in these portfolios, which could create a conflict of interests. Contributors intending to write about any financial instruments in which they have an interest are required to disclose such interest to ii and in the article itself. ii will at all times consider whether such interest impairs the objectivity of the recommendation.
In addition, individuals involved in the production of investment articles are subject to a personal account dealing restriction, which prevents them from placing a transaction in the specified instrument(s) for a period before and for five working days after such publication. This is to avoid personal interests conflicting with the interests of the recipients of those investment articles.