Interactive Investor

ii view: Taylor Wimpey reiterates positive 2021 estimates

11th November 2021 10:49

Keith Bowman from interactive investor

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It bought land early in the Covid crisis and will generate an estimated dividend yield of over 5%. 

Second-half trading update from 5 July to date

  • Full-year guidance unchanged

Chief executive Pete Redfern said:

“We have been building a strong forward order book for 2022 and continue to see good demand for our homes, supported by a positive market backdrop. 

“Looking ahead, market conditions remain supportive, and with the benefit of our strong land position we are well placed to deliver against our medium-term targets."

ii round-up:

Housebuilder Taylor Wimpey (LSE:TW.) today reported a robust if in line second-half trading update.

A sales rate of 0.91 homes per outlet per week during the period from early July to date largely matched that achieved in the same pre-pandemic 2019 (0.93) period. Management’s full-year profit expectation remains unchanged at around £820 million with UK build completions still forecast to come in at the upper end of its previous guided 13,200 to 14,000 range.

Taylor Wimpey shares drifted marginally lower in UK trading, having gained by around a third since pandemic induced market lows back in March 2020. Shares for London focused rival Berkeley Group (LSE:BKG) are up by a similar amount over that time while shares for smaller builders Redrow (LSE:RDW) and Vistry Group (LSE:VTY) are both up by more than 80%.

Cancellation rates for Taylor Wimpey proved much the same as 2019, coming in at 14% compared to a pre-pandemic 15% and 21% for the Covid confidence hit 2020 period. 

A total order book of £2.8 billion is marginally up on 2019’s £2.7 billion, with the group’s landbank continuing to grow and aided by last year’s £520 million fundraising.  

Accompanying management outlook comments flagged supportive market conditions with continued low interest rates and good mortgage availability.

Its next trading update is scheduled for 13 January. 

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 £5.5 billion, behind Persimmon and Barratt Developments. Along with its core UK operations, it also has a small Spanish housebuilding business.   

For investors, supply chain challenges are feeding into build cost increases, and UK interest rates look certain to rise as the Bank of England tries to contain inflation. Stretched UK government finances following the pandemic also mean a scaling back of supportive measures for homebuyers, including the recent ending of the stamp duty holiday.

But house price increases are countering rising build costs, and last year’s fundraising to buy land is expected to boost earnings as build volumes increase. Taylor Wimpey shares trade on a price-to-net asset value of under two, which is a discount to peers like Persimmon. It’s paying a dividend again too. In all, and with the shares now sat on an estimated future dividend yield of over 5%, long-term income investors are likely to remain interested. 

Positives: 

  • Growing land bank
  • Attractive forecast dividend yield (not guaranteed)

Negatives:

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

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.

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