Since the beginning of January, the Taylor Wimpey (LSE:TW) share price has fallen by 45%. Against a backdrop of rising interest rates and a cost-of-living crisis, investors appear to have fallen out of love with Britain’s fourth-biggest builder.
A sell-off too far?
But, has the sell-off gone too far? Taylor Wimpey’s shares are now lower than they were in March 2020. That was the start of the coronavirus pandemic when Boris Johnson told the nation to stay at home and Britain’s construction workers downed tools for a period.
Despite the recent steady flow of disappointing economic data, surely things aren’t that bad?
Half-year results
Well, Taylor Wimpey’s half-year results weren’t all doom and gloom.
Although revenue was down 5.4% to £2.1bn, operating profit was up 0.1% to £425m.
Encouragingly, despite inflation in the building sector running close to 10%, Taylor Wimpey managed to increase its operating profit margin from 19.3% to 20.4%.
Looking forward
The future looks positive with the company’s order book worth £2.8bn. Taylor Wimpey also has a land bank of 88,000 plots.
The board expects full-year operating profit to be at the top end of the current market consensus range.
Cladding
However, investors have been nervous about the impact of the cladding crisis on the construction sector.
Taylor Wimpey has signed the government’s Fire Safety Pledge for Developers. This means the company will have to pay for the replacement of dangerous cladding, but this is now fully provided for in the accounts, and there should be no more bad news on this front.
The recent dramatic fall in the share price has increased the dividend yield to an impressive 10%. The firm has also concluded a £150m share buyback programme.
Caution
But, there’s one warning sign that makes me a little nervous.
In her upbeat statement, which accompanied the half-year results, CEO Jennie Daly said: “There remains good availability of attractively priced mortgages.”
But, that was in August. Since then, Kwasi Kwarteng has delivered a mini budget that sent markets into turmoil. Nearly 2,000 mortgage products have since been removed from sale.
I doubt whether Taylor Wimpey’s boss would be able to repeat her statement now.
Government policy
However, the government has said it’s intending to reform the planning system, making it quicker to get new developments built.
There’s even talk of a replacement for the Help to Buy scheme, which is intended to help first-time buyers get on the housing ladder. The present scheme is due to end in March next year.
Stamp duty cuts have also been promised, although current government turmoil means the situation could change.
What am I going to do?
Investing is all about the long term and, right now, Taylor Wimpey’s shares do look cheap.
However, I already own shares in Persimmon, Britain’s biggest builder.
The Persimmon share price has also fallen by 45% this year, and I’m nursing some paper losses. Investing in Taylor Wimpey would mean too much of my portfolio being concentrated in one sector.
So, although I think there’s money to be made from Taylor Wimpey, because of my shareholding in Persimmon, I’m not going to buy at the moment. Otherwise, I would be including the stock in my portfolio.