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Taylor Wimpey - On course for full year expectations

Nicholas Hyett | 13 November 2017 | A A A
Taylor Wimpey - On course for full year expectations

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Taylor Wimpey plc Ordinary 1p Shares

Sell: 123.90 | Buy: 124.00 | Change -0.60 (-0.48%)
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Taylor Wimpey continues to see strong sales rates, with an average of 0.81 sales per outlet per week so far this year. The company is on track deliver full year results in line with prior expectations, and "further growth and performance improvement in 2018".

The shares remained broadly unmoved following the update.

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. That's helped to send Taylor Wimpey shares back to pre-referendum levels.

However, it hasn't been plain sailing for everyone in the property game. The UK's estate agents are making 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 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. The Bank of England's recent decision to raise rates will increase the price of mortgages, but rates are still incredibly low by historical standards.

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.

The shares offer an attractive prospective yield of 7.8%. However, investors should be aware that the majority of this is predicated on a continuation of recent special dividends. There's little reason to suspect an imminent change of plan, but if prices start falling and conditions materially worsen, those generous specials could be on the block.

The group will detail future dividend plans at next year's Strategy Day.

Third Quarter Trading Update

Taylor Wimpey's current total order book, excluding joint ventures, stands at 8,751 homes or £2.2bn - slightly behind this point last year.

The group is currently operating from 285 outlets, slightly ahead of last year, with a sales rate in the most recent 8 week period of 0.73, exactly in line with last year. Cancellation rates also remain unchanged at 13%.

The group expects build costs to be 3-4% higher this year, reflecting increased labour costs and a modest level of cost inflation in building materials.

Having added 13,700 plots to the short-term landbank in the year so far, the short-term landbank has grown slightly to around 80,000 plots, with the strategic landbank at 107,000 plots.

For the year as a whole, management expect to operating profit margin to rise on last year's 20.8%, and return on net operating assets to be over 30%. The group plans a total dividend for 2018 of around £500m, with further material capital returns in 2019 and beyond.

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.

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