Taylor Wimpey warning rattles housebuilding sector

 A rush of FTSE 100 updates includes bad news for housebuilders, but Aston Martin is racing higher.

A day after the UK's leading housebuilders were backed by a City bank to “emerge from the rubble”, Taylor Wimpey (LSE:TW.) has reminded investors the recovery is still on shaky foundations.

As well as a loss of £39.8 million, Taylor Wimpey warned in half-year results that disruption caused by recent site shutdowns would mean house completions are likely to be down 40% this year. This will have an inevitable impact on revenues and margins in 2020, with a knock-on effect for its 2021 performance.

Shares tumbled 9%, even though CEO Pete Redfern said the company's balance sheet, order book and growing landbank meant it was well placed to emerge stronger from the pandemic. He also signalled a dividend return by the start of next year.

Other housebuilders were impacted by Taylor's weakness, with rivals Persimmon (LSE:PSN) and Barratt Developments (LSE:BDEV) down by 2% in the FTSE 100 index.

The falls reverse gains seen yesterday after a positive note on the sector from UBS was accompanied by speculation that the government plans to extend the Help to Buy equity loan scheme.

The upbeat view of UBS reflected several positive fundamentals, including low interest rates supporting affordability and the ongoing government support for housing. It also anticipates further consolidation as larger rivals snap up struggling smaller players.

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UBS has six ‘buy’ recommendations in the sector, with Persimmon and Berkeley (LSE:BKG) seen as the strongest in terms of balance sheet and margins. The others in favour are Taylor, Barratt, Redrow (LSE:RDW) and Bellway (LSE:BWY), while the bank is avoiding Vistry, Crest Nicholson and McCarthy & Stone.

Analyst Greg Kuglitsch reckons the sector offers an upside of 22%, but adds there are a number of risks ranging from a material decline in house prices to the negative impact of a disorderly Brexit. His 175p price target on Taylor Wimpey, which has been reiterated following today's results, compares with the current 120p. The stock was last trading this low in April.

Today's slide for Taylor Wimpey was the biggest in the FTSE 100 index, although gains for miners and retail-focused stocks after a better-than-expected update from Next meant the top flight just about clung to positive territory at 6,141.

Rio Tinto (LSE:RIO) shares were 2% higher at 4,841p after its half-year underlying earnings of US$9.6 billion came in 4% stronger than City estimates, helped by a strong iron ore price environment. It also declared an interim dividend of $2.5 billion, equivalent to 155 US cents per share, and reconfirmed its 2020 production guidance across all commodities.

Half-year results from Smith & Nephew (LSE:SN). were less well received after the medical devices firm said it remained unable to give guidance for the rest of the 2020 financial year.

Its second-quarter revenues of $901 million were down by 30% due to hospitals putting hip replacements and other elective surgeries on hold due to the need to focus on Covid-19 patients. Most procedures have now resumed, meaning underlying revenues were 12% lower in June compared with 47% down in April.

The company, which kept its interim dividend at 14.4 cents a share, added: “There continues to be significant uncertainty and geographical variation as Covid-19 continues to impact our major markets.” Its shares were down by as much as 4% before recovering to 1% lower.

Tullow Oil (LSE:TLW) shares were another casualty as it braced investors for impairments of between $1.4 billion and $1.7 billion when forthcoming half-year results take account of weaker oil prices.

Shares in Africa-focused Tullow slumped from 140p in December to as low as 7.5p in March, and are still only at 27p despite a recent deal to raise $575 million from the sale of its assets in Uganda. That should leave a mark on a debt pile which Tullow today said stood at $3 billion.

In his first update since becoming CEO, Rahul Dhir added that first-half production was in line with forecasts. Shares fell 4% today.

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One of the most traded stocks of the session was Aston Martin Lagonda (LSE:AML), with the luxury car maker up 8% to 53.8p after its half-year results. Billionaire Lawrence Stroll, who became executive chairman in April when his consortium and other investors pumped in £688 million of new equity, said the company had made significant progress despite Covid-19 disruption.

His reset of the business includes a drive to reduce the level of inventories at dealerships in order to boost the exclusivity of the brand. The inventory figure fell by 869 units in the period, despite a 41% fall in total retail sales to 1,770 cars in the six months.

The company also reported encouraging signs from China, where all dealerships re-opened in June and achieved an 11% year-on-year rise in sales for the month. Production has also restarted for the new DBX sport utility vehicle, which is seen as critical to the company's future.