Despite a difficult 2022 so far for the housebuilding sector, low interest rates and good mortgage availability bodes well and Taylor Wimpey shares remain attractive on valuation grounds. Our head of markets explains why.
Taylor Wimpey’s (LSE:TW.) bold strategy at the height of the pandemic is already beginning to bear fruit, further propelling a business in increasingly good shape.
As many of its competitors hunkered down during the pandemic, the company took the opportunity to go on something of a spending spree with the future in mind, enabled by a capital raise. This has already resulted in an additional 29,000 new plots to its short-term landbank, some of which have been converted across a “healthy” balance of large and small sites.
Meanwhile, UK home completions have risen by 47%, the order book currently stands at a comfortable £2.6 billion and net cash has increased to £837 million. At this early stage, the company has forward sold 47% of its units for 2022 and has confirmed that full-year numbers will be in line with expectations.
This will partly be achieved through careful cost and planning management, and has also been made possible by house price inflation, which has outstripped build cost inflation during 2021, despite the well-publicised challenges of supply chain blockages and raw material price increases. The group is also maintaining its ambitious target of operating margin around the 21-22% level.
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The strong picture will also enable Taylor Wimpey to return further cash to shareholders, with a potential buyback being announced at the full-year numbers in March. In the meantime, the dividend yield of 5.4% is punchy enough to pay shareholders to wait, quite apart from being at extremely attractive levels given the historically low interest rate backdrop.
Indeed, this interest rate environment and the continuation of good mortgage availability bodes well for the sector, and Taylor Wimpey itself remains attractive on valuation grounds compared to the historical average.
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However, the final piece of the jigsaw remains incomplete as the share price has languished in comparison to the success of many of its peers. Over the last year the shares have declined by 7%, as compared to a hike of 12% for the wider FTSE100, and the shares are down by 27% over the last two years, in the time leading up to the pandemic.
The previous fundraising and removal of the dividend, alongside fears over a weak economic recovery in the UK, came alongside the removal of the stamp duty holiday and a revamping of the Help to Buy scheme.
While the shares have yet to recover from these simultaneous blows, investor sentiment towards the company and its prospects is undaunted, and the market consensus of the shares still stands defiantly at a "strong buy".
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