We don’t support this browser anymore.
This means our website may not look and work as you would expect. Read more about browsers and how to update them here.

Skip to main content
  • Register
  • Help
  • Contact us

Taylor Wimpey - Dividend and profits up

George Salmon | 1 August 2017 | A A A
Taylor Wimpey - Dividend and profits up

No recommendation

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%)
Chart View factsheet

Market closed | Prices delayed by at least 15 minutes | Switch to live prices

The previously disclosed provision of £130m, for customer redress after selling leasehold properties with punitive terms that included a doubling of ground rents every 10 years, has held back reported first half profits.

However, operating profits excluding exceptional costs, were 24.2% ahead year-on-year at £346m. The group has raised the interim dividend to 2.3p per share and also announced a higher special dividend of 10.4p, due to be paid in July 2018. The shares rose 1.5% on the news.

Our View

Fears that the vote to leave the EU would blow a Brexit-shaped hole in the housing market have unravelled, as the big players consistently report demand holding up well. This has helped to send Taylor Wimpey shares up, and back to pre-referendum levels.

However, it hasn't been plain sailing for everyone in the property game. For example, some of the UK's estate agents have made notably less encouraging noises. The extra wind in the sails of the builders may be coming from the Help to Buy Scheme, which is specifically designed to promote the purchase of new build homes. Indeed, 45% of Taylor Wimpey's sales in the first half utilised these government schemes.

Many of the factors that have been driving the UK housing market in recent years are still in play. Brits remain committed to home ownership and the UK still faces a major housing shortage, supporting demand in the long run. While there have been rumblings that interest rates might nudge back up to 0.5%, rates look set to stay at historic lows. This should mean mortgages remain affordable.

For all that, housing is a notoriously cyclical sector and sentiment can change quickly. Whether it comes as a result of the economy creaking, or interest rates rising, investors should be prepared for the downs as well as the ups.

Taylor Wimpey is in a better position than it has been in the past. The group has displayed good capital discipline and has a much stronger balance sheet than before the last crisis. A £130m impairment, in relation to lease agreements on properties sold between 2007 and 2011 that saw ground rents double every 10 years, is not ideal, but will be absorbed easily enough.

Indeed, the impairment has hardly put the brakes on its capital return plans. However, if prices start falling and conditions materially worsen, the generous special dividends investors have seen in recent years could be on the block. For now, however, the prospective yield is 7.1 %.

First half results

The increase in underlying profits was generated through an 18.5% jump in revenue and a 1 percentage point rise in operating margins, which have increased to 20.2%. Revenues were boosted by a 9.3% increase in the number of completions, which have risen to 6,580, and a 6.3% increase in the average selling price. The average Taylor Wimpey home sold for £253,000 in the period.

The short term landbank stands at 76,503 plots, equating to c.5.3 years of supply at current levels. The group also has 105,000 plots which have yet to obtain planning permission.

Looking ahead, the group has reiterated its previous medium-term targets, which include:

  • An average annual return on net operating assets of 30% (currently 30.8%)
  • An average operating profit margin of c.22%
  • A total of £1.3bn to be paid in dividends over the three years to 2018.

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

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.