Taylor Wimpey has confirmed trading over 2017 has been strong, and further growth is expected in 2018. The group says full year results, due on 28 February, look set to meet existing expectations.
The shares fell 3% on the news.
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 signals coming from the UK's estate agents haven't been so positive. 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 first half sales used these 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 notoriously cyclical 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 Â£130m provision relating to sales between 2007 and 2011 isn't ideal, but will be absorbed easily enough.
The shares offer an attractive prospective yield of 7.2%. However, investors should be aware this is predicated on a continuation of recent special dividends. At present, there's little reason to suspect a diversion from plans to increase the payout by c.10% next year, but if prices start falling and conditions materially worsen, future payments could well be lower.
In 2017, total home completions increased by 5% to 14,541, of which 19% were affordable homes. The average selling price rose 4% to £264,000. Demand remained strong over the year, with the net private reservation rate rising from 0.72 in 2016 to 0.77 homes per outlet per week.
While build cost inflation in 2017 was 3-4%, the group says operating profit margins and return on net assets both look set to rise, to 21.2% and 'over 32%' respectively.
The group has made progress dealing with the issue of its historic punitive ground rent terms. This arose in April last year and gave rise to a 130m provision. Around 90% of freeholders have agreed to switch to RPI-based terms.
As of 31 December, the short-term land bank was broadly level on last year at c.75,000 plots. Another 9,000 plots were added to the strategic bank, taking the total to c 117,000.
Peter Redfern, Taylor Wimpey CEO said "We go into 2018 with positive momentum and expect to achieve further progress against our medium term targets."
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