Interactive Investor

ii view: Taylor Wimpey shares up 20% on Covid cure

9th November 2020 12:08

Keith Bowman from interactive investor

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The housebuilder's sales have gained momentum, but it's news of a possible Covid vaccine that's exciting.

Second-half trading update

  • Sales rate of 0.76 homes per outlet per week, down from 0.93 in 2019
  • Order book up 11% to £3 billion

Guidance:

  • On track to deliver full year 2020 results towards the upper end of analyst estimates
  • Expects to deliver 2021 operating profit materially above current City forecasts

Chief executive Pete Redfern said:

"The safety of our colleagues, customers, suppliers and subcontractors remains our priority and I am extremely proud of the resilience and commitment shown by our teams. We are now safely operating at close to normal capacity with a product profile well positioned to meet customer demand. The trading backdrop remains resilient and the quick recovery of the housing market is testament to the underlying strength of demand and supportive lending backdrop."

ii round-up:

Housebuilder Taylor Wimpey (LSE:TW.) now expects to report full-year 2020 profits at the upper end of City forecasts of between £242 million to £292 million as sales continued to recover quicker than expected from the pandemic slump. 

Continued momentum at the business is now expected to see operating profit for next year 2021 materially beating current analyst forecasts of up to £626 million.

That's great news for shareholders, but an announcement today that Pfizer (NYSE:PFE) has developed a Covid vaccine that is "90% effective" against the virus is the real driver behind today's share price gains.

Taylor Wimpey shares rose by more than 10% in early UK trading, reducing the drop in its shares year-to-date from over 35%. But they doubled that gain after the Pfizer news, reaching their highest levels since June. Rival mid-sized housebuilder Redrow just days previous reported recent strong trading leaving its share up over 4% following the announcement and reducing its 2020 share price slump to under 40%. 

The government’s recently announced stamp duty holiday had aided a sales rate of 0.76 homes per outlet per week in the second half of the year. Up from 0.70 in the pandemic hit first-half. Build completions for 2021 are now expected to be between 85% to 90% of 2019 levels given a return to near normal capacity. Analysts were estimating a figure nearer to 80%. 

A continued focus on costs and supportive house prices should also feed into the improved profit estimates, along with land buying at opportune prices. A June shareholder fund raising enabled it to take advantage of increased opportunities, buying 70 sites for £826 million. 

As previously announced, a restarting of the ordinary dividend payment is now expected to commence with the 2020 final payment. It previously suspended both ordinary and special dividend payments in order to preserve cash during the Covid crisis. A review of its special dividend policy will be made in 2021 for payment in 2022. 

ii view:

Taylor Wimpey was formed from the merger of George Wimpey and Taylor Woodrow back in 2007. It is currently the fourth biggest UK listed housebuilder with a value of just over £5 billion, behind Persimmon (LSE:PSN), Barratt Developments (LSE:BDEV) and Berkeley Group (LSE:BKG).

Ultra-low interest rates and the government’s help-to-buy-scheme, introduced in the aftermath of the 2008 financial crash, have proved a boom for housebuilders. Combined with the red tape of council planning, the result has been rising house and land prices, both of which have helped housebuilders to make significant shareholder returns in recent years. At the end of 2019, housebuilder dividend yields at or close to double digits were not uncommon. This came on top of triple-digit share price gains over the last 10 years. Taylor Wimpey shares are up over 430% since 2010. 

For investors, the suspension of both ordinary and special dividends removed what was a core attraction. Renewed lockdowns and any possible impact on buyer demand are also yet to be established. But the government has once again proved its support for the sector. A near normal return to operations and pent-up buyer demand are now fuelling both sales and expectations of a return to dividend payments. In all, supportive market and government dynamics now look to be back behind Taylor Wimpey shares. 

Positives: 

  • Order book up 11% to £3 billion
  • Planning to restart the dividend payment

Negatives:

  • The renewed lockdown could hinder buyer demand
  • Help to Buy scheme is currently due to end in 2023

The average rating of stock market analysts:

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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