CEO Pete Redfern commented, "With strong market fundamentals, customer demand for our high-quality homes remains robust and we are achieving a strong sales rate and building a healthy forward order book."
Taylor Wimpey is on track to meet the expectations laid out in its full year results. The group expects 18.5% - 19.0% operating margins this year, and volumes are expected to recover to 85% - 90% of 2019 levels.
A 2020 final dividend of 4.14p will be paid on 14 May 2021, subject to shareholder approval. The group is also planning to pay an interim dividend of 4.14p in November as part of its policy to return 7.5% of net assets to shareholders each year. No further capital returns are expected until 2022.
The shares were broadly flat in early trading.
Taylor Wimpey could emerge a pandemic winner if the supportive economic environment persists.
An aggressive land-buying spree during the second half of 2020 sets it apart from most of its peers who were tightening the purse strings. The group saw an opportunity to snap up swathes of well-priced land and raised extra capital to do so. It's a move that could yield strong returns well into the future - if the housing market holds up.
That is of course a big "if". So far, Taylor Wimpey's management sees no signs of demand for new houses slowing and demand for homes under the new Help to Buy scheme has been "strong." But the big question on our minds is whether we're marching toward a pandemic-induced economic hangover. A prolonged economic downturn could drive house prices lower and turn the group's aggressive land-buying strategy into an expensive mistake.
Housebuilders have masses of capital tied up in land, raw materials and homes at various stages of completion. If house prices fall far enough, these can't be sold at a profit and their value will be written down. If volumes also decline the problem is compounded, and cash flow can quickly become a real issue.
A strain on cash would put Taylor Wimpey's dividend on the chopping block - as we saw earlier this year.
For now, the group has more than enough cash to cover its dividend payments and the housing market appears to be on stable footing. Brits are ideologically committed to home ownership and the country still faces a major housing shortage. Interest rates are still incredibly low by historical standards, so mortgages remain cheap and the reintroduction of widespread 95% mortgages could go a long way in boosting demand.
We were encouraged by the strength in Taylor Wimpey's order book, especially considering the Stamp Duty holiday drawdown and the reworked Help to Buy scheme.
Taylor Wimpey's balance sheet is in good shape and the group can deploy its cash reserves to develop its land acquisitions this year. Management is committed to achieving margins between 21% and 22%, which looks manageable to us, if trading normalises as expected.
Taylor Wimpey is in a much better spot than we predicted. But it's not out of the woods yet. The economic environment is still crucial, and while Taylor looks well positioned in a buoyant market, the group could be in trouble if conditions sour.
Taylor Wimpey key facts
- Price/Earnings ratio: 10.8
- 10 year average Price/Earnings ratio: 10.7
- Prospective dividend yield (next 12 months): 5.3%
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
Trading Update (22/04/21)
As at 18 April, the net private sales rate was 1.00, ahead of 0.90 in the same period last year. The cancellation rate dropped from 16% to 14% and sales prices increased.
The group's forward order book comprised of 10,995 homes and was worth roughly £2.8bn (2019:£2.7bn).
The short-term landbank stood at roughly 82,000 plots, a 5% increase from the same period last year. The strategic land pipeline was 4.4% higher at around 143,000 potential plots.
Taylor Wimpey is still aiming for operating margins of around 21% - 22% in the medium term.
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