St Modwen signs deal with Persimmon

Brownfield land specialist St Modwen has entered a joint venture with housebuilder Persimmon to develop 2,000 homes on 7 sites owned by St Modwen. The development covers 120 acres and will take up to 5 years to complete, with an end value of around £300m.

The groundbreaking deal is good news for both companies, but for St Modwen the deal is especially attractive because land being sold into the joint venture is expected to command book value or better, which underpins the value of the rest of St Modwen's land bank. Furthermore, by boosting cashflow St Modwen will gain additional headroom on its covenants.

IC View

This is a sensible deal that benefits both parties. Persimmon runs a tight ship and has achieved a rise in margins, while enjoying strong cash generation and virtually no debt, and at 379p the shares remain a buy. Shares in St Modwen also retain their attraction at 178p and remain a long-term buy.

Last IC View: Persimmon; Buy, 368p 7 July 2010: St Modwen; Long-term buy, 176p 5 July 2010.

Related topics

Subscribe today

Full access for just £3.37 a week:

• Tips and recommendations - to beat the market 
• Portfolio clinic & Mr Bearbull - build a well-planned portfolio 
• Expert tools - track and manage investments effortlessly
• Plus free delivery to your home or office

Subscribe Now