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Taylor Wimpey - completions ahead of expectations

Taylor Wimpey reported first half revenue of £2.1bn, down 5.4% as the group lapped record performance last year...

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Taylor Wimpey reported first half revenue of £2.1bn, down 5.4% as the group lapped record performance last year. Excluding joint ventures, the group completed on 6,760 homes, down from 7,303 last year but ahead of guidance.

Planned land sales and strong performance from Joint Ventures pushed margins up, helping operating profit stay broadly flat at £424.6m.

The group now expects full year operating profit toward the top end of £873-£924m. That's driven by average selling prices that are expected to be 4-5% higher than last year, fully offsetting 9-10% build cost inflation. UK completions are expected to see low single digit growth, with a year end net cash balance around £600m.

The board has proposed an interim dividend of 4.62p, up 8% on last year.

The shares rose 1.9% following the announcement.

View the latest Taylor Wimpey share price and how to deal

Our view

First half trading saw completions ahead of expectations and profit guidance got a boost as a result. Demand for UK homes has continued to outstrip supply and relatively low rates and good mortgage availability remained too tempting for some buyers to resist. House prices have still been going up, and for now that's offsetting the effect of increased build costs.

The Landbank is a particular strength for the group, who've added another 6,000 new plots to the short-term bank over the last year. The focus now is bringing plots on-line, with new land spend looking more at maintaining, rather than adding to, the land bank. That's wise, given the cost of land has been increasing as competition ramps up.

In addition to the ongoing labour and supply chain challenges, sector wide planning permission disruptions are a thorn in the side. But Taylor Wimpey's position is better than some peers, with 99% of 2023 planned completions having planning in place.

Barring any major disruption to the housing market, completions look on track to grow at low single digit rates this year.

And therein lies the biggest question, how long will the booming market last? So far, data around forward orders, cancelations and buyer sentiment suggests buyers are paying little attention to rising living costs. Taylor Wimpey's taking a cautious, and data driven, approach to pricing. But ultimately are hoping to seeprices continue to rise over the year.

The housing market may feel hot, and it almost feels inevitable that things will calm at some point, but there are some underlying tailwinds supporting the longer-term market. Brits are ideologically committed to home ownership, rental costs are increasing and interest rates are incredibly low by historical standards.

The balance sheet is in good shape too, and the group can deploy its plump cash reserves to develop or acquire land. Management is committed to achieving margins between 21% and 22%, and progress is expected to continue this year.

There's more than enough cash flowing through the business to cover its dividend payments. Having a dividend policy linked to asset value, rather than earnings mean investors are more likely to receive a base level of dividend even in a downturn. Of course, no dividends are guaranteed.

Taylor Wimpey doesn't boast the margins of some of its more specialist peers and fears that a market downturn is round the corner means the group trades a good way below its longer-term average valuation. But as far as broad-based exposure to the UK housing market go's, it's in a good position looking longer term.

Taylor Wimpey key facts

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.

Half Year Results

The group's net private reservation rate was 0.90 homes per outlet per week, down from 0.97. Cancelation rates remained at normal levels of 15%. 50 new outlets were opened over the period, up from 37 last year.

The group's average selling price was broadly flat at £300k, as affordable housing made up a larger portion of sales. The average selling price on private completions rose 3.1% to £337k.

As of 31 July, the group was around 92% forward sold for private completions in 2022. The order book, excluding joint ventures, was valued at £2.9bn (2021: £2.7bn).

The short term landbank has grown by around 6k plots over the last 12 months, to around 88k plots with a net book value of £3.1bn. The group's strategic pipeline stood in the region of 145k potential plots at the end of the period.

Net cash fell from £837m at the start of the period to £642.4, due to land investment and shareholder returns. The Increased land investment also meant money owed to land creditors rose to £843.7m (2021: £806.4m).

An additional £80.0m provision was set aside to fund cladding fire safety improvement works, which has been charged to exceptional items.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. 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.

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Written by
Matt Britzman
Equity Analyst

Matt is an Equity Analyst on the share research team, providing up-to-date research and analysis on individual companies and wider sectors.

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Article history
Published: 3rd August 2022