These are uncertain times for the house-builders, which took a major hit after the Brexit vote and have only recently shown signs of recovery. Yet the UK property market continues to boom, with prices up 6.5% in the past year, according to latest Halifax data, while the housing crisis only seems to worsen. So what do today’s results from Taylor Wimpey (LSE: TW) tell us about the sector?
Far from Wimpey
There was certainly no sign of crisis in today’s numbers. 2016 home completions totalled 13,881 including joint ventures, up 4% on 13,341 in 2015. Average selling prices on private completions increased 13% to £286,000, up from £254,000 in 2015, helped by better quality locations. Its overall average selling price increased 11% to £255,000, up from £230,000.
Taylor Wimpey’s net private reservation rate was 0.72 homes per outlet per week, down marginally from 0.73, while its cancellation rates remained low at 13%, against 12% before. So no worries there. It ended the year with net cash of around £365m, up from £223.3m in December 2015. That is after paying dividends totalling £355.9m in 2016, up from £308.4m in 2015. Lucky shareholders.
Taylor made
Chief executive Pete Redfern talked up rising completions, robust trading, a strong forward order book and predicted full-year profitability at the upper end of consensus, despite challenging conditions. Which all looks positive to me but investors are clearly cautious about the sector, with the share price nearly 2% down in early trading.
That may be partly down to the Taylor Wimpey super soaraway success story, which has seen the share price rise a stonking 352% in the last five years. It’s also up 21% over the last three months, as investors decided initial fears over the damage Brexit might inflict on the house-building sector were overdone.
Sector uncertainty
The sector has delivered mixed results in recent weeks, with Bovis Homes Group (LSE: BVS) delivering a shock profit warning shortly after reporting that it was on course for record revenues. This knocked values across the sector but turned out to be a company-specific problem, caused by delays in getting the final sign-off for 180 houses before the end of the year.
Last week, Persimmon (LSE: PSN) soothed fragile nerves by reporting an 8% rise in 2016 revenues to £3.14bn, with new home volumes up 4.1% to 15,171, and the average selling price rising 4% from £199,127 to £206,700. Healthy customer demand, low mortgage rates, and the attraction of buying a new-build are all sustaining sales, management said.
Build, baby, build
Personally, I believe the house-builders have been oversold, and I’m evidently not alone in this, as investors have been rushing in lately. Taylor Wimpey is up 13% in the last week alone, yet still trades at a far from demanding forecast valuation of just 9.6 times earnings, while the yield is a forecast 7.9%.
Forecast earnings per share figures suggest a sharp slowdown from 17% last year to -1% in 2017, and a slight recovery to 4% in 2018. So investors must brace themselves for some volatility. Rising interest rates would hit sentiment, although I don’t foresee much upward movement in the UK. While the housing shortage continues, companies like Taylor Wimpey should continue to build on their recent success.