Taylor Wimpey have this morning released results for the six months to 2 July 2016. The shares were up by over 4% this morning as the group said that current trading remains in line with normal seasonal patterns, despite the uncertainty around the impact of the EU vote.
The group completed a total of 6,019 homes, excluding joint ventures, up 3%.
The average selling price rose by 5.8% to £238k (excluding joint ventures).
Taylor Wimpey retain a short term landbank of c.78k plots with over 60% sourced from the strategic land pipeline.
Immediately after the EU vote, Taylor Wimpey tightened requirements for buying new land, resulting in a slight drop in purchases of new plots. 3,110 plots were bought into the short term land market, compared to 3,620 plots in the same period last year. The group are now encouraged by the stability and resilience of the market and believe the risk brought by the vote is starting to reduce.
The interim dividend has increased to 0.53p per share. From 2017, the ordinary dividend is set to increase to £150m, around 5% of net assets. The group reiterate their intention to stick to the previously announced special dividend of £300m, equating to 9.2p per share, due to be paid in July 2017.
Looking forward, Taylor Wimpey are targeting an average annual return on net operating assets of 30% and an average operating profit margin of c.22% by 2018. The group will seek to return a total of £1.3 billion to shareholders in dividends over the same period.
With builders' profits and cash flows highly geared to house prices, fears over a potential housing slowdown hit share prices across the sector in the wake of the UK's vote to leave the European Union.
The result has thrown some doubts over the UK's economy, which now looks set to be facing a prolonged period of uncertainty. Consumer sentiment could take a hit, particularly if unemployment rises, making people more likely to sit on their hands rather than commit to house purchases. This leaves the housing market potentially vulnerable to a correction.
In recent weeks, both property services company LSL and estate agent Foxtons have released more gloomy comments to the market, so investors will have been relieved to see Taylor Wimpey report little change in trading thus far.
It is also worth remembering that some things won't change as a result of the vote. Brits still want to own homes, whether in or out of the EU, and government schemes such as help-to-buy will almost certainly be unaffected. The UK still faces a major housing shortage, which should support demand for housing in the long run. Meanwhile, interest rates look likely to stay lower for longer; barring a full blown sterling crisis, given the weaker outlook for the UK economy. This should continue to support mortgage affordability.
In addition, Taylor Wimpey have displayed good capital discipline and have a much stronger balance sheet than before the 2008 crisis.
The group's capital returns plans do make the potential dividends attractive, with a potential yield of over 9% in 2017. However, if prices start falling and conditions do materially worsen, this could come into question. At present, despite its recent de-rating, the group trades on a forward price to book ratio of 1.6x, above its historic average.
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