ii view: Taylor Wimpey cements record first-half completions

A prospective dividend yield of over 4.5% and previous land buying before others. Buy, sell, or hold?

First-half results to 4 July

• Build completions up 166% to 7,219
• Revenue up 191% to £2.19 billion
• Operating profit of £424 million, up from a loss of £16 million in H1 2020
• Net cash up 82% to £906.5 million
• Interim dividend of 4.14p per share, suspended in H1 2020

Guidance:

• Expects full year operating profit to be £820 million, ahead of current forecasts

Chief executive Pete Redfern said:

“Our focus remains on driving further improvement in our operating profit margin and accelerated outlet-driven volume growth from 2023.

“Backed by last year's equity raise we stepped up our activity in the land market before competition returned and we successfully increased our land pipeline with high-quality sites that will deliver a strong financial performance.”

ii round-up:

Housebuilder Taylor Wimpey (LSE:TW.) today pushed up its expectations for full-year profit as it delivered record first-half build completions following the halt to activity suffered last year due to the pandemic. 

Full-year operating profit of £820 million is now expected, ahead of analyst estimates of £808 million, with full-year completions now expected to come in towards the upper end of its previous 13,200 to 14,000 forecast range. The interim dividend was restarted following last year’s Covid uncertainty suspension, with a payment of 4.14p per share declared. 

Taylor Wimpey shares rose by more than 2% in UK trading, leaving them up by more than 45% since pandemic induced lows back in March 2020. Shares for larger rivals Persimmon (LSE:PSN) and Barratt Developments (LSE:BDEV) are both up by more than 80% over that time. 

Record first-half completions of 7,303 compared to just 2,771 in the Covid hit first half of 2020 and were aided by delayed builds in the final quarter of 2020. Group revenue as a result jumped 191% year-over-year to £2.19 billion. 

An operating profit margin of 19.3% compared to 18% in the pre-pandemic 2019 period and was aided by strong cost control and growth in build completions.

Management noted that “The UK housing market remains strong, underpinned by low interest rates, good mortgage availability and Government support for customers.”

Taylor’s UK order book as of early August stood at £2.7 billion, representing 10,589 homes. A total of 99% forward sold completions for 2021 had been made. 

ii view:

Taylor Wimpey was formed from the merger of George Wimpey and Taylor Woodrow back in 2007. Today, it is the third biggest UK listed housebuilder with a value of just over £6 billion, behind Persimmon and Barratt Developments. Along with its core UK operations, it also has a small Spanish housebuilding business.   

For investors, an ending of the UK government’s stamp duty tax holiday in October could have some dampening impact on the housing market overall. Stretched UK government finances following the pandemic could also see it looking to rein in supportive housing market measures at some point. And recent Central Bank money printing to support economies globally could also feed through to inflation, possibly forcing interest rates higher. 

That said, demand for new build houses clearly remains robust. Taylor Wimpey’s previous move to tap shareholders and fund land buying looks sensible. And a jump in net cash and the resumption of dividend payments both bode well for likely shareholder returns going forward. In all, and with the shares now sat on a prospective yield of over 4.5%, investor backing for this housebuilder appears deserved.   

Positives: 

• Healthy levels of current customer interest in reservations flagged
• Attractive dividend payment (not guaranteed)

Negatives:

• Government ‘help to buy’ scheme previously watered down
• Rising raw material costs

The average rating of stock market analysts:

‘Strong buy’