Taylor Wimpey plc (TW.) Ordinary 1p Shares
HL comment (26 April 2022)
Taylor Wimpey continues to benefit from a healthy UK housing market, as higher interest rates and cost of living pressures haven't impacted demand. Progress towards the operating margin target of 21-22% is expected to continue this year.
The group's committed to fixing cladding issues on all buildings over 11m going back 30 years. Previous provisions were based on a 20-year period, the extended timeframe adds an extra £80m in costs bringing the total to £245m.
In line with the dividend policy, an interim dividend of 4.44p has been proposed due to be paid in November. The £150m share buyback is ongoing, with around £75m purchased to date.
The shares rose 3.1% following the announcement.
First quarter trading for Taylor Wimpey continues the recent trend. Demand for UK homes remains strong as relatively low rates and good mortgage availability remain too tempting for buyers to resist. House prices are still 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 5,000 new plots to the short-term bank over the last year. That builds upon land buying over the pandemic, which was a risk, but 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. At some level of prices volumes will come under pressure, and that'd put pressure on the entire sector, but there's no telling what that level is.
For now, the housing market may feel hot, but there are some underlying tailwinds. Brits are ideologically committed to home ownership and rental costs are increasing especially outside London. Interest rates are incredibly low by historical standards, so mortgages remain cheap and the reintroduction of widespread 95% mortgages boosts demand. Plus, the country still faces a major housing shortage.
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 is expected to continue this year. The group has more than enough cash to cover its dividend payments, despite extra costs associated with fixing cladding issues, and is even giving extra back to investors via a share buyback.
Taylor Wimpey's 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
- Price/Book ratio: 6.6
- Ten year average Price/Book ratio: 10.2
- Prospective dividend yield (next 12 months): 8.2%
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.
In the year to 17 April, private sales per outlet per week came in at 0.96 (2021: 1.00) as healthy levels of house price growth more than offset rising costs. Cancelation rates remained steady from last year at 14%.
The total order book was valued around £3.0bn (2021 £2.8bn) at the 17 April 2022, representing 10,967 homes.
At the end of March 2022, the short-term landbank stood at around 87,000 plots (2021: 82,000) and the long-term strategic pipeline contained around 145,000 potential plots (2021: 143,000).
As previously announced, long term CEO Pete Redfern steps down today. His replacement, Jennie Daly, said: "We have also continued to make good progress against our strategic priorities, including driving growth in operating profit margin and outlet openings. Demand for our homes remains strong, with the business well positioned to deliver further progress in 2022 and beyond."
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. 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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