Taylor Wimpey’s first-half revenue fell 7.3% to £1.5bn. This was driven by new home completions being 8.4% lower in the period at 4,654, as well as a 2.7% decline in average selling prices to £356,000.
Operating profit dropped 22.6% to £182.3mn due to build cost inflation and lower revenue, which was only partially offset by increased profit from land sales. Regardless, this profit figure was 12% ahead of market expectations.
Free cash flow fell from £50.0mn to £29.8mn. The net cash position was 10.8% lower at £584.0mn.
Full-year completions look set to come in at the top end of its prior 9,500-10,000 guidance range. Operating profits are now expected to be in line with current market forecasts, which points to around £416mn.
An interim dividend of 4.8p per share has been announced, broadly in line with last year.
The shares rose 1.7% following the announcement.
Our view
There were a few things to like in Taylor Wimpey’s first-half results. While operating profits were down year-on-year, they were still around 12% better than markets expected. Net private sales rates moved slightly higher too, indicating a small improvement in housebuyers’ confidence and their ability to commit to big purchases.
A combination of real house price declines and lower mortgage rates have eased some of the affordability pressures on buyers of late. And with softer UK inflation figures coming through, markets expect rates to fall over 2024. Lower rates are a tailwind for buyers, increasing their purchasing power. A potential homebuyer with a £1500 monthly mortgage budget has over 10% more borrowing capability at 4.0% than 5.0%.
4,728 new homes were completed in the first half, meaning the top end of the group’s 9,500-10,000 full-year target looks well within reach. That’s given management the confidence that full-year operating profit will meet market forecasts of around £416mn.
That would mark a decline of around 10% year-over-year. There’s potential for a recovery in the housing market to gather steam in 2025, supporting consensus forecasts that profits will rebound back past 2023 levels. Brits are ideologically committed to home ownership and the country has been in a prolonged period of housing undersupply, a trend that's unlikely to change anytime soon.
The landbank is a particular strength for Taylor Wimpey, who have a robust pipeline of potential projects. The focus now is bringing plots online, with new land spending remaining at subdued levels. That's wise, given the cost of land is yet to reflect the less favourable outlook.
But there are still challenges to navigate.
The sector's facing ongoing labour and supply chain challenges, and planning permission disruptions remain a thorn in the group's side. We’re pleased to see the new government promise to refresh the national planning framework, but it’ll likely be a while before the impact of these changes are felt by housebuilders.
The balance sheet's in very good shape, arguably one of the strongest in the sector. A net cash position of £584mn should help provide a cushion for any potential bumps in the road.
The current dividend policy is linked to asset value, rather than earnings. That means investors are more likely to receive a base level of dividend even in a downturn. But remember, dividend policies can change on a dime. No dividends are guaranteed.
There’s still plenty of uncertainty ahead in 2024, with margins likely to remain under pressure throughout the year. But there are tentative signs of improved buyer activity, and with a longer-term lens, the valuation remains attractive. Given its robust financial position, Taylor Wimpey is one of our preferred names in the sector.
Environmental, social and governance (ESG) risk
Most housebuilders are relatively low risk in terms of ESG, particularly for those in Europe. However, there are some environmental risks to consider, from direct emissions to the impact of their buildings on the local ecology. The quality and safety of their buildings is also a key risk.
According to Sustainalytics, Taylor Wimpey’s management of ESG risk is strong.
The group has a strong greenhouse gas reduction programme in place and reports on scope 1, 2 & 3 emissions. There are clear deadlines in place and a renewable energy programme has also been implemented. While the group uses recycled materials, there’s no disclosure of the percentage used.
Taylor Wimpey key facts
All ratios are sourced from Refinitiv, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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