ii view: Taylor Wimpey recovery impresses City

2020 was a year of two halves for this major housebuilder. We assess prospects. 

Full-year results to 31 December 2020

Chief executive Pete Redfern said:

"2020 was a very challenging year, during which our priority has continued to be the health and safety of our colleagues, customers, suppliers and subcontractors. Operating performance has bounced back strongly in the second half of 2020, with build capacity returning to near normal levels and strong sales.

We are confident in the medium term performance of the housing market and therefore accelerated our land purchases from May 2020 as high-quality land became available at attractive rates. We are now focusing on driving efficiencies across the business, the roll out of our new house type range and implementing our ambitious new environmental strategy.

ii round-up:

Despite first-half pandemic disruption, housebuilder Taylor Wimpey (LSE:TW.) has reported a record UK forward order book as strong customer demand post the first lockdown continued into the new financial year. 

The order book as of late February stood at £2.79 billion, up 8% on the same time last year, with selling price growth being achieved in the first two months of the year. Taylor Wimpey shares rose by more than 2% in UK trading.

Results followed speculation that the pending Chancellor’s Budget would see a new mortgage guarantee scheme introduced to help first-time buyers. Wimpey shares are up by nearly 50% following March 2020 pandemic lows, although they are still down by around 15% over the last year. Shares for rivals such as Berkeley Group (LSE:BKG) and Bellway (LSE:BWY) remain down by a similar amount.

As previously flagged, and like other housebuilders, Taylor Wimpey restarted its dividend, declaring a payment of 4.14p per share. A policy to pay out approximately 7.5% of net assets was outlined. A review of previously made special dividends is expected over 2021 for a potential payment in 2022. 

Build completions fell by nearly 40% over the year to 9,799, following a complete halt to construction under the first spring 2020 lockdown, but they had recovered to near normal levels subsequently. 

Profit before tax and exceptional items fell by almost 67% to £274 million. However, the 2021 operating margin is expected to increase to between 18.5% and 19% as build completion volumes recover. That's up from the 10.8% achieved in 2020. 

Half of the company's expected builds in 2021 are already sold and sales stretch into the year and over the period when the stamp duty holiday and changes in ‘help to buy’ scheme are expected to be made. 

Taylor also announced £125 million in funding to support fire safety improvement works to bring its apartment buildings constructed in the last 20 years up to the recently announced requirements.

ii view:

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

For investors, uncertainty regarding both the pandemic and a follow through impact from Brexit cannot be completely ignored. Recent concerns for central bank action and growing inflation could also potentially see interest rates rise. Government action to reduce current buyer incentives such as reining in the ‘help to buy scheme’ also require consideration.

But demand for new build houses clearly remains robust. Recovery from pandemic build disruption is ongoing, while Wimpey’s June move to tap shareholders and fund land buying appears highly sensible. Cash generation has allowed the return to dividends, with special dividends potentially back on the cards as early as 2022. For now, and with government support for the sector unlikely to completely disappear, momentum may now be back behind this major housebuilder.

Positives: 

• Record UK forward order book
• Dividend payment recommenced

Negatives:

• Government buyer support expected to reduce
• Recent concerns for rising interest rates

The average rating of stock market analysts:

Strong buy