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Taylor Wimpey - profit guidance still on track

Taylor Wimpey saw total group completions for the year down slightly from 14,302 to 14,152...

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Taylor Wimpey saw total group completions for the year down slightly from 14,302 to 14,152, with the UK making up the lion's share of these at 13,773 completions.

The group's overall average selling price increased by 4% to £313,000 this year.

Full-year net private reservation rates fall from 0.91 homes per outlet per week to 0.68 in 2022. Reservation rates slowed more significantly, to 0.48, during the second half of the year.

The order book value fell from £2.6bn to £1.9bn year on year, with ongoing market uncertainty and a rise in mortgage rates being blamed as the cause of this decline.

Cancellation rates for the full year rose from 14% to 18%.

As of the end of 2022, the short-term landbank stood at roughly 83,000 plots, with a total strategic pipeline of 144,000 plots. These numbers were broadly flat compared to 2021 figures.

Taylor Wimpey finished the year with net cash of £864m, up from £837m last year, which was largely a result of reduced land spend.

The shares were broadly flat following the announcement.

View the latest Taylor Wimpey share price and how to deal

Our view

Taylor Wimpey reassured investors that full year profit guidance remains in-tact, and even stated operating margins improved over the period. However, other aspects of trading are now reflecting the current difficult economic conditions. Further increase in cancelations and a drop in sales volumes this year points to potential trouble ahead.

This isn't a major shock, though, and Taylor Wimpey's valuation has already built in a lot of pain to come with the shares down around 30% over the last 12 months. House prices have fallen slightly of late, but affordability remains a struggle for many potential buyers. Add to that the fact mortgage rates have risen sharply and inflation's eating away at real income, you've got a recipe for falling demand.

Demand isn't the only headwind, though. The sector's facing ongoing labour and supply chain challenges and sector wide planning permission disruptions are a thorn in the side.

Housebuilders are, by definition, cyclical businesses; performance has often risen and fallen along with broader economic conditions so it's important to look at the big picture when the downturns come round. Although of course past performance is not a guide to the future.

With that in mind, there are some positives. The landbank is a particular strength for the group, who've built a robust bank of potential projects. 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 is yet to reflect the less favourable outlook.

There are also some underlying tailwinds supporting the longer-term market. Brits are ideologically committed to home ownership and the countries been in a prolonged period of housing undersupply, a trend that's unlikely to change anytime soon.

The balance sheet's in good shape as the group is ending the year with net cash of £864m. This war chest will certainly be a benefit if conditions do get worse.

The current dividend policy is linked to asset value, rather than earnings. That means investors are more likely to receive a base level of dividend even in a downturn. But remember, dividend policies can change on a dime. No dividends are guaranteed.

Taylor Wimpey doesn't boast the margins of some of its more specialist peers and a good deal of pain's built into the valuation which is well below its longer-term average. As far as broad-based exposure to the UK housing market goes, Taylor Wimpey looks to be in as robust a position as it could be for now.

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.

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: 13th January 2023