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Taylor Wimpey - confident outlook

Charlie Huggins | 1 March 2016 | A A A
Taylor Wimpey - confident outlook

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No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Taylor Wimpey plc Ordinary 1p Shares

Sell: 162.75 | Buy: 162.85 | Change 1.20 (0.74%)
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Taylor Wimpey has announced a strong performance in 2015, delivering an increase in the number of homes sold, at higher selling prices. This drove a 16.9% increase in revenue to £3,139.8m, while operating profits rose by 32.5% £637.0m on the back of higher margins. The group enters 2016 with a record order book, providing confidence in the outlook. The shares rose by 1% in early morning trading.

Financial highlights:

  • Total home completions rose by 7.5% to 13,219 homes. Total average selling prices increased by 8% to £230k.
  • Operating profit margin of 20.3% (2014: 17.9%).
  • Return on net operating assets of 27.1% (2014: 22.5%).
  • Net cash of £223 million at year end, up from £112.8m last year.
  • Total maintenance dividend of 1.67 pence per share, up 7.1%. Further c.£300 million (9.20 pence per share) surplus cash to be returned in July 2016, subject to shareholder approval.


Outlook:

The UK housing market remained robust during late 2015 and has strengthened into the beginning of 2016, according to the group. Taylor Wimpey is c.50% forward sold for private completions for 2016 with a strong forward order book (up 27% on the prior year).

Our view:

Taylor Wimpey is enjoying strong volumes and rising selling prices, whilst the forward order book provides good visibility. The group is in excellent shape, and plans to pay a £300m special dividend to shareholders in July 2016. Including regular dividends, this should see the group return more than £350m in 2016, equating to a dividend yield of 5.5%.

The housing market is currently being supported by rising disposable incomes, low mortgage rates and government schemes such as Help-to-Buy, which are encouraging more people onto the housing ladder. Changes announced in the Autumn Statement (alluded to by Taylor Wimpey in its pre-close trading update) should further support the outlook. George Osborne plans to invest almost £7 billion on measures to help people, especially first-time-buyers, purchase their own home.

Land price inflation is running at modest levels, with the government keen to open up further land for development, in recognition of the UK's chronic housing shortage. This is supporting margins, cash flows and returns of capital to shareholders.

It has not escaped investors' attention that the house builders are in a sweet spot, meaning the sector is trading at a significant premium to book value. This means share prices are likely to be vulnerable when the next housing downturn arrives. For now, market conditions look set to remain favourable, suggesting the house builders' purple patch could last a while longer.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.