Interactive Investor

Stars are aligned for Taylor Wimpey – but for how long?

22nd April 2021 17:41

Richard Hunter from interactive investor

Firm benefits from stamp duty holiday and other perks, but the shine could wear off the sector this year.

The stars are aligned for the housebuilding sector at present, and Taylor Wimpey (LSE:TW.) continues to reap the benefit.

Historically low interest rates, government support schemes for low-deposit mortgages and the stamp duty holiday would be sufficient tailwinds for the sector to thrive in normal circumstances. In addition, the availability of mortgages, an ongoing demand/supply imbalance and loosening lockdown restrictions add further fuel to the fire, and for the moment prospects are bright.

Taylor Wimpey has also taken the opportunity to go on something of a land-buying spree with the future in mind. In the meantime, the forward order book remains strong, at £2.8 billion, up 5% from the previous year. Net private sales are also in the ascendancy and an ambitious operating profit margin target of 21-22% would double last year’s number if achieved.

Including the proposed new dividend, the forward yield on the shares is 4.5%, which provides an additional attraction for income-seekers on top of the capital growth being experienced. The extra carrot of special dividends as early as next year depending on the strength of trading is another factor which could lure new shareholders.

The potential elephant in the room for the sector is the performance of the UK economy as various forms of government assistance for individuals evaporate.

The likely spike in unemployment and a potential cooling of sentiment following the expected spending boom post-pandemic could both take the shine from the sector as it stands.

However housebuilders continue to defy the odds, and in any event are in much better shape having learned the lessons of the previous financial crisis.

For Taylor Wimpey, this has resulted in a share price increase of 43% over the last year as compared to a jump of 19% for the wider FTSE 100, with plenty of investor support. The current market consensus of the shares as a strong ‘buy’ is therefore likely to remain intact.

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