Interactive Investor

ii view: Taylor Wimpey passes keys to new chief exec

26th April 2022 15:40

Keith Bowman from interactive investor

Offering an estimated dividend yield of over 7%, but shares in this FTSE 100 housebuilder are down year-to-date. We assess prospects.

Trading update from 1 Jan to 17 April

New chief executive Jennie Daly said:

"Trading has continued to be strong, supported by a healthy market backdrop. We have also continued to make good progress against our strategic priorities, including driving growth in operating profit margin and outlet openings. 

“My focus now and for the future is on ensuring Taylor Wimpey delivers its significant potential. I will set out my priorities to the market in May."

ii round-up:

Housebuilder Taylor Wimpey (LSE:TW.) today flagged ongoing strong trading as its chief executive of the past 14 years passed the keys to the big office to its former operations director Jennie Daly.

Trading from the start of the year to mid-April had remained in line with management’s previous forecasts, with a net private sales rate of 0.96 down only slightly from 1.00 in the same period last year. 

Taylor Wimpey shares rose by more than 2% in UK trading having fallen by just over a quarter year-to-date. Shares for rivals Persimmon (LSE:PSN), Bellway (LSE:BWY), Vistry Group (LSE:VTY) and Redrow (LSE:RDW) are all down in 2022 by a similar amount. The FTSE 250 index has fallen by more than 11%. 

Taylor Wimpey and the wider industry have been facing cost inflation, hundreds of millions of pounds in cladding provisions, rising interest rates as well as the cost-of-living crisis.

The FTSE 100-listed firm's total order book stood at approximately £2.97 billion in mid-April, up from £2.80 billion the same time last year, and comprised of 10,957 homes, down from 10,995 in 2021.

Earlier in April, Taylor Wimpey signed the Government's fire safety pledge, with its latest provision of £80 million for fire safety cladding remediation works bringing its total to £245 million. 

Accompanying outlook comments noted that despite a rise in interest rates, they remain at historically low levels, along with good availability of competitively priced mortgages. 

An investor day for the CEO to lay out her priorities is scheduled for the 25 May. 

ii view:

Taylor Wimpey was formed from the merger of George Wimpey and Taylor Woodrow in 2007. It sold its construction business in 2009 along with its North American business in 2011. Today, it operates across 23 UK regional divisions as well as a small Spanish housebuilding business.   

For investors, UK inflation running at elevated levels puts ongoing pressure on the Bank of England to do more in raising rates. Rising energy and food costs because of the war in Ukraine have fed into a cost-of-living crisis, while supply chain challenges continue to push on build costs. Stretched UK government finances from the pandemic also leave it with little room to lower taxes. 

On the upside, demand for new homes remains robust, house price increases have countered rising build costs, and provisions for renewed cladding costs continue to be made. In all, given a focus on shareholder returns, and with the shares sat on an estimated future dividend yield of over 7%, appeal for income orientated investors looks to persist.  

Positives: 

  • Robust customer demand
  • Attractive forecast dividend yield (not guaranteed)

Negatives:

  • Backdrop of rising interest rates
  • Rising raw material costs

The average rating of stock market analysts:

Strong buy

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