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A rising Taylor Wimpey lifts all housebuilding boats but rightly so?


Taylor Wimpey PLC’s (LON:TW.) upbeat trading statement lifted the wider housebuilding sector on Monday even before good news on a potential coronavirus vaccine sent the wider market soaring.

The FTSE 100 group was a noticeably more bullish than smaller rival Redrow (LON:RDW) had been last week.

READ: Taylor Wimpey says profits should hit top of forecasts this year and next

Not all housebuilders are made equal, however, and while some of the good news in the High Wycombe group’s statement might be applicable to the rest of the sector, some is not.

Firstly, TW had reported a loss in the first half of the year, leading to its shares falling 40% so far this year to bargain levels, with Credit Suiise saying the market price was around a 38% discount to its assets despite “superior execution and dividend”.

Today’s news that profits are now expected at around GBP292mln and above GBP626mln next year, based on higher average selling prices and building capacity returning to normal, clearly was a big boon for such a discounted stock.

Furthermore, trading was reported as solid in weekly sales and even reservations beyond next March, when the government’s Help to Buy scheme becomes less generous and the stamp duty holiday ends, have remained robust.

Lie of the land

While the post-virus residential property market has partly been characterised by a rush for homes nearer countries, green space or larger gardens, TW continues to have a sizeable amount of business in London, though it far from its largest segment.

In the first half, almost 37% of sales were in the north of England, close to 36% in the central and south-west England and 28% in London and the south-east.

What’s more, since raising GBP500mln in the summer to go on a land-buying spree it has shaken hands on GBP826mln of gross land purchases, comprising 70 sites and around 14,500 plots.

This is significantly ahead of its normal rate of acquisition and at prices that it says can allow it to maintain its medium term operating profit margin target of 21-22%.

Adding this to a landbank of around 78,000 plots, the company said the acquisitions “give us increased confidence of delivering our medium term operating margin target and will enable us to accelerate our volume growth from 2023 onwards”.

While the board had already promised to restart the halted dividend at this year’s final results, cash flow is now above GBP700mln and strong enough that a special dividend has been suggested for the not-too-distant future.

Diversity of views

Investors and analysts were wowed by the update overall, with UBS saying it would result in a 24% upgrade to the City’s consensus 2021 profit forecasts.

“This is a positive update and provides good read across that the housebuilders continue to trade strongly,” said the analysts at Liberum, though they expressed a continued preference for Persimmon, which has an update due out on Tuesday and with a large land bank and “exposure to the strongest areas of the housing market with its high proportion of first time buyers and relatively low average selling prices”.

It wouldn’t be wise for all the housebuilders to be too shout and wave their hands excitedly, said equity analyst William Ryder, at Hargreaves Lansdown, like the waiter to the customer with a fly in their soup.

“If all the housebuilders were similarly bullish there wouldn’t be any opportunities to buy up land on the cheap, so we should expect some diversity of views.

“Taylor has been fairly gung ho for a while now, and recently raised fresh capital which gives them the firepower to be fairly aggressive.”

He added that Redrow’s statement was not particularly negative, “just a little more cautious in tone”.

However, one issue that Redrow mentioned was that the planning regime in was not proving as easy as Boris Johnson and his government had perhaps intended.

Again, this may not just be a company-specific issue.

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