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Taylor Wimpey - revenues fall, demand weakens

Taylor Wimpey's half-year revenue fell 21.2% to £1.6bn. This decline reflects lower net private sales rates, down from 0.90 to 0.71.

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Taylor Wimpey's half-year revenue fell 21.2% to £1.6bn. This decline reflects lower net private sales rates, down from 0.90 to 0.71, as higher mortgage rates dented demand.

Operating profit fell from £424.6m to £235.6m, as operating margins declined from 20.4% to 14.4%. This reflected a lower level of completions and increased building costs which were not fully offset by house price growth.

The order book fell 23.3% to £2.1bn, excluding joint ventures. Completions were also down from 6,922 to 5,120, but this was ahead of group expectations.

Net cash increased slightly, up 2% to £654.9m. Free cash flow fell from an inflow of £107.6m to an outflow of £50.6m.

Taylor expects full-year completions to be 10,000-10,500, at the top end of guidance. Operating profit is expected to be in the range of £440m-£470m.

The interim dividend was raised 3.7% to 4.79p per share.

The shares rose 2.5% following the announcement.

View the latest Taylor Wimpey share price and how to deal

Our view

Taylor Wimpey's feeling the effects of a housing slowdown. The current high-interest rate environment is making mortgage affordability tough and ultimately denting demand. As a result, we're seeing sales rates slide lower and cancellation rates edge higher, both contributing to a double-digit decline in revenues in the first half.

Pricing remained resilient in the first half, with average selling prices up 6.7% to £320,000 reflecting positive mix impacts. But recent data from Nationwide suggests house prices are now falling at the fastest rate since the global financial crisis. If this trend continues, we could see Taylor's revenues come under further pressure.

The sector's also facing ongoing labour and supply chain challenges, and planning permission disruptions are continuing to be a thorn in the group's side. Build cost inflation remains uncomfortably high too, but has eased from the 9-10% levels seen at the start of the year.

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 too. 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, with net cash of around £655m which will 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 remains 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 August 2023