Taylor Wimpey plc (TW.) Ordinary 1p Shares

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Since the mid-year point, Taylor Wimpey’s average weekly net private sales rate rose from 0.51 to 0.70, compared to the same period last year. This uplift was driven by improved customer demand as mortgage rates have fallen.

On 4 November 2024, the order book excluding joint ventures stood at £2.2bn (7,716 homes), up from £1.9bn last year.

The group has been more active on land acquisitions this year, securing around 15,000 plots as worries about tax changes in the Government’s budget brought new sellers to the table. As a result of increased land buying, year-end net cash guidance has been lowered from £550mn to £500mn.

Full-year completion targets have been reiterated, expected to come in towards the top end of the 9,500-10,000 guidance range. Full-year operating profit is expected to be in line with current market expectations, which points to around £416mn.

The shares were broadly flat in early trading.

Our view

Taylor Wimpey’s trading update showed that things are moving in the right direction. A combination of real house price declines and lower mortgage rates have eased some of the affordability pressures on buyers of late. That’s seen sales rates rise sharply since the half-year mark.

And with UK inflation looking largely under control, markets expect rates to keep falling well into 2025. 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 profit forecast would mark a decline of around 10% year-over-year. But 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. Despite this, it’s been active with its land buying of late. Worries about tax changes in the run-up to the Government’s budget brought new sellers to the table, and the group looks to have pounced. Full-year cash balances will be lower as a result, but there’s still a big cushion in place so it’s not something we’re concerned about.

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 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, with margins likely to remain under pressure in the near term. But there are tentative signs of improved buyer activity, and with a longer-term lens, the valuation remains attractive. Given its robust financial position and a strong pipeline of land, 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.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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