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Taylor Wimpey - record revenue despite flat prices

Nicholas Hyett | 27 February 2019 | A A A
Taylor Wimpey - record revenue despite flat prices

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Taylor Wimpey plc Ordinary 1p Shares

Sell: 158.60 | Buy: 158.75 | Change -6.85 (-4.14%)
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Underlying profit before tax increased 5.5% to £856.8m, thanks to increased margin and total number of completions.

The board announced a final dividend of 3.8p.

The shares rose 1.7% in early trading.

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Our view

Uncertainty around Brexit means the UK housing market is creaking. Transaction numbers are down, and prices are stagnating.

That's not great news for Taylor Wimpey. The housing market in London and the South East is particularly sluggish, and Taylor has a relatively high exposure to this area. So it could really do without that trend getting worse or spreading to other areas.

Helpful government policies have boosted profits recently. But with Help to Buy set to end in 2023, it's a tailwind that's rapidly running out of puff. 34% of Taylor Wimpey's sales are to first time buyers - well over 5000 of its builds depend on the scheme each year. That means there will be quite a hole to plug in a couple of years.

We're not saying it's game over. 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.

The added good news is, 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. That should help if conditions start to become tougher.

The final silver lining is near-term plans to increase the dividend remain unchanged, with £600m earmarked as shareholder returns next year. Remember though, the uncertain times ahead mean it's something investors should keep an eye on.

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Full Year Results

Group revenue rose 2.9% to £4.1bn, which is a record for the group. That came as total completions rose 2.9% to 15,275. The average sale price remained flat year-on-year at £264,000.

Build cost inflation was 3-4%, although operating margins still improved slightly from 21.3% to 21.6%, in line with Taylor's strategy to maintain margins at around 21%-22%.

The forward order book stands at 8,304 units, that's a 16.4% increase on 2017. The underlying net private sales rate was 0.9, compared to 0.82 in the previous year. The landbank remains unchanged at 5.1 years supply.

Net cash reached a record £644.1m, although this does not include land creditor obligations, which rose 15.5% to £738.6m.

Cost inflation is expected to continue into the next financial year. As previously announced, Taylor Wimpey intends to pay a total dividend in 2019 of around £600m.

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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.