ii view: Taylor Wimpey shares keep rising as reservations increase

Shareholder returns remain suspended, but operations are slowly reopening with demand healthy.

Business update

ii round-up:

Housebuilder Taylor Wimpey (LSE:TW.) reported a rise in reservations over recent weeks as sales and show homes had begun to reopen from mid-May following Covid-19 lockdowns. 

Construction recommenced across most of its English and Welsh sites in early May as lockdown restrictions eased, with sales and show homes reopening in England for pre-booked appointments only from 22 May. Operations had shut on the 24 March. 

Taylor Wimpey shares rose by more than 2% following this latest update, having fallen by more than 10% year-to-date. Its shares rose by more than 40% during 2019. 

Sites in Scotland are now preparing for a return to construction under government guidance. Sales centres in Scotland and Wales are expected to reopen by early July. All its employees have now returned from furlough. 

Its order book at the end of May was worth £2.78 billion, the equivalent of 11,228 homes, up from £2.52 billion the same time last year.  

Build completions for the 22 weeks to the end of May totalled 2,455, down from 4,052 in the same period last year and reflecting the impact of site closures.

Customer cancellation rates had remained low. Taylor operates across 24 regional businesses across the UK and has a small operation in Spain.

It previously cancelled both a final and special dividend payment to shareholders totalling £485 million in order to preserve cash during the Covid crisis.

ii view:

Taylor Wimpey was formed from the merger of George Wimpey and Taylor Woodrow in 2007. It is currently the fourth-biggest housebuilder listed on the London stock market with a value of £5.5 billion, behind Persimmon (LSE:PSN), the largest at over £8 billion, and Barratt Developments (LSE:BDEV) and Berkeley Group (LSE:BKG) at £5.8 billion and £5.7 billion respectively.

Elevated build costs crimped the profit margin during 2019, although a decisive general election outcome removed potential opposition policies seen as detrimental to housebuilder prospects.

More recently, Covid-19 and the conservation of cash has left it without the key attraction of shareholder returns. But operations are now returning, with the government previously lifting closures on estate agents and actively pushing a reopening of the housing market.  Although life is unlikely to return to normal for some time, demand for new houses still looks to persist despite the pandemic, with Taylor Wimpey an ongoing beneficiary. 

Positives: 

• Restarting operations following Covid-19
• Order book up 10% year-over-year

Negatives:

• Shareholder returns suspended under Covid-19
• Help to Buy scheme is currently due to end in 2023

The average rating of stock market analysts:

Strong buy