Taylor Wimpey on track for FY but cautious on outlook
By Michele Maatouk
Date: Tuesday 13 Nov 2018
(Sharecast News) - Housebuilder Taylor Wimpey said on Tuesday that it was on track to meet full-year expectations following a "strong" second half, but warned that volumes would be flat next year.
The company said it had seen very good sales rates in the second half of the year, underpinned by positive customer demand and a supportive lending environment.
The UK housing market has remained stable despite wider political and economic uncertainty, with demand for new build homes robust thanks to low interest rates, a wide choice of mortgage deals and the Help to Buy scheme.
For the year to date, the sales rate was unchanged from last year at 0.81, with all three divisions seeing "good" levels of customer demand. For the second half, the sales rate came in at 0.77, up from 0.71 in 2017, while cancellation rates remained low at 14% versus 13% last year.
The housebuilder said it has operated on an average of 275 outlets in the year to date versus 290 last year and has started to increase the number of build teams on certain larger sites as it targets increased efficiency. Current outlets stand at 261 compared to 285 in 2017, slightly lower than expected, as delays have impacted outlet opening timing.
The current total order book, excluding joint ventures, represents 9,783 homes, which is 12% above last year. This order book stands at around £2.4bn compared to £2.2bn in 2017, up 9%. Taylor Wimpey said this is at the upper end of its expectations at this stage and is likely to reduce naturally towards the end of the year as more homes complete.
Meanwhile, the Spanish order book stood at 330 homes as of 4 November compared to 388 in the same period last year due to the timing of development completions. Taylor Wimpey said the market there has remained positive throughout the year.
The company, which reiterated its commitment to return £600m by way of total dividend to shareholders next year, said it expects volumes to be broadly flat in 2019 in current market conditions.
"Looking ahead, whilst current forward indicators for sales continue to be solid, unsurprisingly due to the heightened political and economic uncertainty, we have seen some signs of customer caution, particularly in the South East," it said.
Chief executive Pete Redfern said: "Looking ahead to 2019, we remain mindful of wider political and economic risks and the potential impact on customer confidence. However, with a strong balance sheet in place and a high-quality landbank, our business is well positioned to deliver further sustainable growth and cash flow over the medium term."
At 1150 GMT, the shares were down 1.3% to 161.02p.
Russ Mould, investment director at AJ Bell, said the company's guidance and trading update suggest 2019 could be a tricky year, but once that it is out of the way the group can get back on track fairly rapidly.
"Shareholders will be hoping this outlook is on the money, but the uncertainty referenced by the company makes this a hard one to call. At least the company is prepared to pay investors to be patient with a reiterated commitment to return £600m in dividends in 2019, up 20% on the 2018 level.
"For the time being, a combination of low interest rates, a competitive mortgage market and the Help to Buy scheme is keeping business ticking over, even if build costs are beginning to creep up."
Canaccord Genuity said that given house price inflation has slowed with margins generally under a bit more pressure, it would expect 2019 consensus pre-tax profit to be cut to flat at best, which would imply a downgrade of around 4% to 5%.
"It seems that lower site numbers and a bit more margin pressure in the context of a wary view of 2019 are the reasons for the more cautious view on 2019 but recent trading seems to be holding up well and the balance sheet is in good shape. Clearly, valuation remains attractive but the warning on 2019 volumes is unlikely to reassure investors at this point in the context of the wider macro and political uncertainties. Spring selling season in 2019 is going to be the next key event for the sector."
Liberum said the outlook for 2019 was a surprise. "Our estimates are in line with consensus and assume 3% volume growth, so we could see consensus for 2019 down around 3-5% today. Shares certainly discount worse than this (on price-to-earnings ratio of 7.6x 2018E, price to book 1.6x and yield 9.4%) but a surprise nonetheless."
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