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Taylor Wimpey - stable sales but uncertainty lingers

Nicholas Hyett | 9 January 2019 | A A A
Taylor Wimpey - stable sales but uncertainty lingers

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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 confirmed it's on track to meet full year expectations, and is aiming to return £600m, or 18.3p per share, in dividends to shareholders in 2019.

The shares rose 4% on the news.

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Our view

Cracks are starting to appear in the UK housing market. Transaction numbers are down, which is hurting estate agents and causing prices to wobble in a few areas.

However, the housebuilders are still churning out growth. And government policy is giving builders that bit of extra support. Around 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.

More widely, a lot 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. Despite recent rate rises, mortgages are still incredibly cheap by historical standards.

Our worry is that it's hard to see things getting much better, and with Brexit looming large, no one knows how house prices will fare. The housing market in London and the South East is already sluggish, and Taylor could really do without that getting worse or spreading to other areas. A potential economic slowdown, the withdrawal of supportive government schemes and a rapid increase in interest rates are all possible catalysts for tougher times.

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 a huge prospective yield of 13%. That reflects concerns over Brexit, and investors should be aware that special dividends are a significant contributor, which could easily be cut if conditions turn sour.

Near-term plans to increase the dividend remain unchanged, but the "uncertain macroeconomic and political environment" means it's one investors will need to keep an eye on.

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Trading details

Sales rates for the full year was 0.8 homes per outlet, ahead of last year's rate of 0.77. Together with opening delays, that means the group is trading from an average of 256 outlets - slightly behind the number that was expected.

Average sale prices remained flat at £264,000.

The total order book increased 9.5% to £1.8bn, excluding joint ventures. The order book represents 8,304 homes, with the growth due to affordable housing.

While remaining confident about the short/medium term, the group remains cautious about impacts of the wider political climate. Taylor Wimpey reiterated there are signs of 'customer caution' in the important South East region in particular.

As expected, build cost inflation was 3-4%.

The short term landbank is broadly in line with last year at 76k plots, while the longer-term strategic land pipeline increased 8.5% to 127k plots. The group is confident this will support future volume growth while mitigating the risk of a market downturn.

Taylor Wimpey ended the year with net cash of £644 million, which was ahead of expectations thanks to the timing of land investments.

Full year results are expected on 27 February 2019.

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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.