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Taylor Wimpey - weather dampens spirits

George Salmon | 26 April 2018 | A A A
Taylor Wimpey - weather dampens spirits

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Taylor Wimpey plc Ordinary 1p Shares

Sell: 162.75 | Buy: 162.85 | Change 1.20 (0.74%)
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Taylor Wimpey has released a brief trading update from prior to its AGM. In it, the group confirmed the housing market has remained stable in the first four months of 2018, although business was impacted by the poor weather in early March.

The shares fell 2.9% on the news.

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Our View

There are cracks starting to appear in the UK housing market. Transaction numbers are down, which is hurting estate agents and even causing prices to start falling in a few areas.

However, the housebuilders are still churning out growth. Most of the major players, Taylor Wimpey included, remain upbeat about the short-term outlook. This situation may seem contradictory, but we think government policy is where the builders are getting that bit of extra support.

Over 40% of Taylor Wimpey's sales are to first time buyers, who are eligible for financial assistance through stamp duty relief and the Help to Buy schemes.

In addition, many of the factors driving the UK housing market in recent years remain in play. Brits are ideologically committed to home ownership and the country 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 in the past. The group has displayed good financial discipline and has a much stronger balance sheet than before the last crisis.

The shares offer an attractive prospective yield of 8.1%. However, investors should be aware this is largely dependent on 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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Trading details

So far this year, Taylor Wimpey has averaged 0.85 sales per site per week to private buyers. This is below last year's 0.93, although the group highlights the impact of the weather and says the early months of 2017 saw particularly strong sales.

On 22 April, the order book stood at around £2.2bn, or 9,050 homes. Again, both measures are slightly behind the prior year.

At the end of March 2018, the group had around 77,000 sites with planning permission, and a further 118,000 where permission is yet to be granted. Taylor Wimpey is currently operating from 278 outlets, and says it's committed to opening all sites with planning approval as efficiently as possible.

Looking ahead, the group remains on track to meet its full year expectations, but says completions are likely to be weighted towards the second half. Build cost inflation is anticipated to be at similar levels to 2017, at around 3-4%.

The reported net cash position, which is before adjusting for monies owed to land creditors, will be broadly similar to the year end 2017 at around £511m.

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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 for more information.