ii view: a welcome uptick in Taylor Wimpey's sales rate

Trading update from 1 January to 21 April

• Sales rate of 0.73 per outlet per week
• Cancellation rate of 13%, down from 15% in 2023
• Order book of £2.09 billion or 7,686 homes, down from £2.38 billion or 8,576 homes in 2023

Guidance:

• Continues to expect full-year build completions of between 9,500 and 10,000, down from 10,848 in 2023

Chief executive Jennie Daly said:

"We have made a good start to 2024 with the Spring selling season progressing as expected. While we are mindful of ongoing market uncertainty and affordability challenges, it is pleasing to see continued market stability supported by good mortgage availability and sustained customer confidence. 

“Looking ahead, we are confident that we have a strong and resilient business supported by a high-quality, well-located landbank. We remain focused on driving value and investing in the long term sustainability of the business, and we remain on track to deliver our guidance for 2024 while ensuring we are positioned for growth from 2025, assuming supportive market conditions."

• Invest with ii: Open a Stocks & Shares ISA | ISA Investment Ideas | Transfer a Stocks & Shares ISA

 ii round-up:

Housebuilder Taylor Wimpey (LSE:TW.) today maintained its full-year 2024 estimates as it flagged a spring selling season in line with its expectations. 

It forecasts full-year build completions of between 9,500 and 10,000, with the year-to-date sales rate of 0.73 per outlet per week up from 0.67 in the early weeks of 2024 to late February, and broadly in line with the 0.75 achieved during the same period last year. 

Shares in the FTSE 100 housebuilder rose by almost 1% in UK trading having come into this latest news down around 10% year-to-date. That’s compares to a 5% fall for rival Persimmon (LSE:PSN) and a 22% gain for affordable partnership builder Vistry Group (LSE:VTY). The FTSE 100 index itself is up 4% year-to-date. 

Taylor Wimpey operates across 22 UK regional divisions as well as a small Spanish housebuilding business. Customer cancellation rates for the period fell to 13% from 15% in the same spring season last year. 

The Buckinghamshire headquartered group’s order book as of 21 April stood at a value of £2.09 billion, or 7,686 homes, down from £2.38 billion or 8,576 homes in 2023. 

Build completions during 2024 are expected to be weighted 45%/55% in favour of the second half of the year, with the first-half operating profit margin reflecting slightly lower pricing in the order book and build cost inflation running at around 4%.

Broker UBS reiterated its ‘buy’ stance on the shares post the update, flagging a fair value estimate of 160p per share. 

ii view:

Formed via the 2007 merger of George Wimpey and Taylor Woodrow, Taylor Wimpey today builds homes from flats to six-bedroom houses. A constituent of the FTSE 100 index and employing around 5,000 people, it competes against rivals such as Barratt Developments (LSE:BDEV), Berkeley Group Holdings (The) (LSE:BKG) and Bellway (LSE:BWY). Sales for its small Spanish business totalled 4% of overall revenues during 2023.

For investors, uncertainty over the timing and scale of interest rate cuts during 2024 has seen some mortgage providers recently increase their rates. An investigation by the Competition and Markets Authority into issues including poor build quality and potential price collusion across the sector is not to be forgotten, the planning system remains tough to navigate, while a potential change of UK government later this year adds to outlook uncertainty. 

• DIY Investor Diary: becoming an ISA millionaire was like completing a marathon
• Stockwatch: why I’m downgrading this FTSE 100 share
• The Week Ahead: Lloyds Bank, Barclays, NatWest, Sainsbury’s

On the upside, management flagged ‘continued market stability’ in this latest update, with the sales rate improving. Mortgage availability is robust, management’s focus on costs persists with annualised savings of £19 million made during 2023, while the company has, unlike some rivals, maintained a progressive dividend policy.

On balance, and while a good dose of caution remains sensible, a forecast dividend yield of around 7% and exposure to an upturn in the economic cycle when it comes is likely to keep investors interested in the sector.

Positives: 

• Focus on costs
• Attractive dividend yield (not guaranteed)

Negatives:

• Uncertain economic outlook
• Difficult planning environment

The average rating of stock market analysts:

Buy