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Taylor Wimpey - profits soar, share buyback

Taylor Wimpey reported revenue up 53.6% to £4.3bn as demand for UK homes remained strong.

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Taylor Wimpey reported revenue up 53.6% to £4.3bn as demand for UK homes remained strong. Increased selling prices and good cost control meant operating profits were able to grow from £300.3m to £828.6m, beating guidance.

The number of completions in 2022 is expected to grow in the low single digits. Despite build cost inflation that's currently running at around 6%, the group expects to make progress towards its 21-22% operating margin target.

Earlier in the year, Jennie Daly currently the Group Operations Director, was appointed as CEO effective from 26 April 2022

The board have proposed a final dividend of 4.44p, in addition to a £150m share buyback.

The shares rose 1.5% following the announcement.

View the latest Taylor Wimpey share price and how to deal

Our view

Taylor Wimpey's come out hot with a strong set of results as revenue and profits beat expectations in a year where the foundations were strong. The availability of mortgages was high, completions increased and average selling prices were up, all whilst cancelations fell. That's a recipe for strong performance.

The Landbank is a particular strength for the group, who've added just shy of 30,000 new plots to the short-term bank over the last 18 months. Buying up land over the pandemic was a risk, but it should start to feed into tangible results over the next couple of years, barring any major disruption to the housing market.

And therein lies the biggest question, how long will the booming market last? So far, Taylor Wimpey's seen no signs of demand for new houses slowing despite rising interest rates that'll feed into higher mortgage costs. Rising house prices are more than offsetting the cost increases from supply chain disruption and cost inflation- although volumes could come under pressure if prices keep rising. Bad news for any housebuilder with large sums of capital tied up in land, and cash flow could quickly come under fire.

The housing market feels hot, but there are some underlying tailwinds. Brits are ideologically committed to home ownership and the country still faces a major housing shortage. Interest rates are incredibly low by historical standards, so mortgages remain cheap and the reintroduction of widespread 95% mortgages boosts demand.

All that feeds into a strong order book for future sales, encouraging given the end of the Stamp Duty holiday and the reworked Help to Buy scheme.

The balance sheet is in good shape too, 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%, and progress has been made toward that aim. The group has more than enough cash to cover its dividend payments and is even giving extra back to investors via a share buyback.

Taylor Wimpey is in a strong position and boasts a valuation that isn't too demanding. That makes the group's bold attitude throughout the pandemic look like a smart move that could drive long-term growth for some time to come. Although, cost inflation remains a bugbear, and there are risks to the entire sector with interest rates expected to rise further.

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.

Full Year Results

Total home completions, including joint ventures, rose 47% to 14,087 as volumes recovered following a lockdown impacted previous year. Of that, 18% were affordable homes. The group's net private reservation rate was 0.91 homes per outlet per week, up from 0.76. Cancelation rates returned to "normal" levels of 14%, down from 20% the prior year.

The group's average selling price increased £12,000 to £300,000, with the price of private completions up 3% to £332k. Increased prices offset underlying build cost inflation of around 4%, meaning margins grew to 19.3% (2020: 10.8%).

As of 27 February, the group was more than 60% forward sold for private completions in 2022. The order book, excluding joint ventures, was valued at £2.9bn (2020: £2.8bn).

Around 14,000 plots were bought over the year, taking the total controlled landbank to over 85,000 plots valued at £2.9bn. The group's strategic pipeline stood in the region of 145,000 potential plots at the end of the period.

Net cash rose 16.3% to £837m, largely due to the higher operating profits. Increased land investment meant money owed to land creditors rose to £806.4m (2020: £675.9m).

In March 2021, an additional £125.0 million 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
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 March 2022