Taylor Wimpey has continued to trade well in the first four months of 2016. The new build housing market remained very positive across most geographies, with good accessibility to mortgages at competitive rates. In central London, the market continues to be stable, and the group say the uncertainty surrounding the European Union (EU) referendum has had no impact on trading so far. The shares were flat in early morning trading.
Customer demand was up 14% on last year. Average private net reservation rates increased to 0.80 sales per outlet per week for the year to date (2015 equivalent period: 0.76). Cancellation rates remained low at 11%, in line with last year.
The short term land market remains stable, and Taylor Wimpey continue to be able to source land at prices that offer similar profit margins compared to last year's purchases.
The total order book currently stands at 8,811 homes, up 7% on last year. The value of the order book has risen strongly, up 16.6% from the equivalent point last year, and up 21.9% from the year end.
The company are c.70% forward sold for 2016 private completions, positioning them well for the remainder of the year and beyond. The rate of build cost inflation has reduced, and the group continue to anticipate underlying build cost increases of 3-4% in 2016.
As I pointed out in a recent article, the housebuilding sector has been quite weak this year. A number of reasons have been suggested for this, including uncertainty caused by the upcoming Brexit vote, higher build costs and distortions in the buy-to-let market.
We felt these concerns were probably overdone, and Taylor Wimpey's first quarter results appear to support this. Brexit has had no impact on the group so far and it does not appear in the least bit concerned, even if the UK were to vote out. Meanwhile, build cost pressures have eased to around 3-4%, down from c.5% last year; and importantly land prices remain benign, which is supporting margins and returns of capital to shareholders (the group aims to return more than £350m in 2016).
Recent results from estate agents such as Countrywide and Foxtons suggest changes to stamp duty for buy-to-let investors, which came into effect on 1 April, have led to a rush of buyers, trying to escape the tax surcharge. They warn that demand from this section of the market could be much lower over coming months. We doubt this will have much impact on demand for new homes though. The stock of second-hand houses on estate agents' books remains close to all-time lows, meaning demand for new housing is vastly outstripping current supply.
On measures such as price-to-book and cyclically adjusted price to earnings, the sector trades at high valuations relative to history; meaning it could be very vulnerable should the housing market turn down. For now, market conditions look set to remain favourable, suggesting the house builders' purple patch could last a while longer.
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