ii view: Taylor Wimpey pledges renewed focus on costs

by Keith Bowman from interactive investor |

2019 results will meet forecasts and there's £610 million of dividends in the pipeline.

Full-year trading update to 31 Dec 2019

  • Completions up 5% to 15,719
  • Average selling price up 1.9% to £269,000
  • Operating profit margin of 19.6% (2018: 21.6%)
  • £610 million to be returned to shareholders in dividend payments
  • Order book up 22% to £2.2 billion
  • Net cash balance down 15% to £546 million

Chief executive Pete Redfern said:

"Our results for the year to 31 December 2019 will be in line with our expectations. Despite an uncertain political and economic backdrop in 2019, we have continued to experience a good level of demand for our homes and trading in the second half of the year was as anticipated. The group has again delivered a record sales rate and we increased home completions by c.5% in the year.

"In 2019, our focus was on strengthening the long term sustainability of the business, further improving our build quality and customer offering, as well as increasing operating capacity and flexibility. In 2020, we will continue with these initiatives and will also prioritise a renewed cost focus and process simplification improvements."

ii round-up:

In 2007, George Wimpey and Taylor Woodrow merged to form Taylor Wimpey (LSE:TW.)

It now operates from 24 regional offices across the UK, along with a small operation in Spain. 

For a round-up of this latest trading update, please click here.

ii view:

A recently elected strong majority UK government both reduced investor nerves regarding Brexit and removed potential opposition policies seen as detrimental to housebuilder prospects. As a result, the FTSE All-Share Household Goods and Home Construction sector is up just over 5% since the December 2019 election day. Taylor Wimpey shares have risen more than 15%.

For investors, increased build costs looked to have crimped the operating profit margin and negotiating a trade deal with the EU before the end of 2020 will not be easy, leaving some Brexit risk still on the table.

However, Wimpey has avoided the build quality issues impacting rival Persimmon (LSE:PSN), while shareholder returns across the housebuilding sector remain attractive. A one-year forecast dividend yield in the region of 9% and including expected special dividends (not guaranteed) is highly attractive at any stage of the interest rate cycle, let alone the current low rate environment. A renewed focus on costs is being promised and a newly elected government could also opt to extend the Help to Buy scheme, due to end early 2023. 

Positives: 

  • Total order book value up 22% to £2.2 billion 
  • Ongoing focus on returning surplus cash to shareholders
  • Hopes for a UK interest rate cut have grown

Negatives:

  • Build cost inflation rose from 3% to 4% in 2018 to 4.5% in 2019
  • Brexit uncertainty still overhangs the UK economy
  • Help to Buy scheme is currently due to end in 2023

The average rating of stock market analysts:

Strong buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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