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Taylor Wimpey - profits hold up, outlook murky

Taylor Wimpey's full year revenues rose 3.2% to £4.4bn.

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Taylor Wimpey's full year revenues rose 3.2% to £4.4bn. This was driven by higher average selling prices which rose 4% to £313,000.

Operating profits increased from £828.6m to £923.4m, a record figure for Taylor Wimpey. This was helped by tighter cost controls and a reduced spend on new land as the group reacted to lower sales rates in the second half of the year.

Total group completions fell slightly, down from 14,302 to 14,154 this year. The order book fell from £2.6bn to £1.9bn, excluding joint ventures.

Net cash increased 3.2% to £863.8m due to lower land spending. Free cash flow also rose from £429.4m to £477.3m.

While sales rates rose to 0.62 in the first 8 weeks of 2023, this is still significantly below the 1.02 seen in early 2022 as affordability concerns continue to mount, especially on the minds of first time buyers. Full year completions are expected to fall in the range of 9,000 to 10,500.

A final dividend of 4.78p per share has been announced. This brings the full-year dividend up to 9.4p per share, a 9.6% increase on last year.

The shares were broadly flat following the announcement.

View the latest Taylor Wimpey share price and how to deal

Our view

Taylor Wimpey posted a strong set of results in what's been a tough environment for housebuilders. Revenues and profits were up, but other aspects of trading are reflecting the current difficult economic conditions. Increased cancellations and a drop in sales rates last year point to potential trouble ahead.

The group's valuation already had a lot of this pain built in. As conditions seem slightly better than previously forecast, we're seeing some of this pessimism being unwound - leading to a small rally of around 13% year-to-date but remember this performance is not a guide to the future.

The group's certainly not out the woods yet. While house prices have fallen slightly of late, affordability still 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. Build cost inflation is currently running high, around the 9-10% mark. The sector's also 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 slowing as sales rates decline. 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 country has been in a prolonged period of housing undersupply, a trend that's unlikely to change anytime soon.

The balance sheet's in good shape too as the group finished the year with net cash of £864m. This cash pile will certainly help provide a cushion for the bumpy road ahead.

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
Aarin Chiekrie
Aarin Chiekrie
Equity Analyst

Aarin is a member of the Equity Research team. Alongside our other analysts, he provides regular research and analysis on individual companies and wider sectors. Having a keen interest in global economics, he knows how macro-events can impact individual companies.

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Article history
Published: 2nd March 2023