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Taylor Wimpey - A good year, but uncertainty lingers

George Salmon | 28 February 2018 | A A A
Taylor Wimpey - A good year, but uncertainty lingers

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Taylor Wimpey plc Ordinary 1p Shares

Sell: 117.20 | Buy: 117.30 | Change 0.65 (0.56%)
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Full year results show that another good year at Taylor Wimpey has been impacted by the £105m charge relating to historic punitive ground rent charges.

The shares fell 5.9% on the news.

In 2017, the group paid dividends totalling 13.79p per share, and expects to pay 15.3p per share in 2018. This includes a 10.4p special dividend.

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Our View

The UK property market is, as usual, attracting plenty of column inches and hogging conversations at dinner parties. Of particular interest the slowdown in the wider market, while the UK's builders keep churning out the growth.

We suspect the explanation is that while lower transactions in the secondary market are hurting estate agents, and even causing prices to start falling in a few areas, government policy is giving the builders that bit of extra support. Schemes like Help To Buy and waiving Stamp Duty are specifically designed to promote the purchase of new build homes, and aid first time buyers. With over 40% of sales in at least one of these categories, Taylor Wimpey is a clear beneficiary.

In addition, many of the factors driving the UK housing market in recent years remain in play. Brits appear to be ideologically committed to home ownership and the UK still faces a major housing shortage. 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.

Our worry is that it's hard to see things getting much better, and housing is notoriously vulnerable to rapid changes in sentiment. It'd be foolish to think the market won't come off the boil at some point.

Encouragingly, 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 chunky 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 7.8%. 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 in 2018, but if prices start falling and conditions materially worsen, future payments could well be lower.

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Full year results

2017 revenue rose 7.9% to £4bn. The increase was driven by a 4.6% rise in total completions, which rose to 14,842 homes, and a 3.5% increase in UK total average selling price to £264,000.

The group's operating profit margin increased to 0.4 percentage points to 21.2% despite the average build cost rising 4.7% to £143,700.

Reported pre-tax profits of £682m were hamstrung by the £105m impairment. On an adjusted basis, the group delivered £812m, up 10.7%.

The group reported a net cash balance of £512m, up from £365m last year. However, separate to this, the group owes £639m to land creditors.

Taylor Wimpey's land bank fell slightly in the year, to 74,849, although this is still equal to five years of supply at current rates. The group has another 117,000 plots in its strategic pipeline, ie. land without confirmed planning permission.

Group CEO Peter Redfern said: "2017 was another strong year for Taylor Wimpey and we enter 2018 in a good position with positive forward momentum. We have been encouraged by early trading patterns at the start to the year and despite some wider macroeconomic uncertainty, consumer confidence remains robust and market fundamentals are solid."

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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 disclosure for more information.