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Taylor Wimpey had a terrific first half, as the number of house completions increased by 11% and the average selling price rose by 10%. In the first six months of 2014, revenue and profits increased by 18.2% and 63.7% respectively. A combination of rock-bottom interest rates, a willingness to lend by banks and the help-to-buy scheme all attributed to the jump in earnings.
We are four months away from the UK General Election, and David Cameron has pledged to offer large discounts to first-time buyers; Taylor Wimpey has already voiced its support for the initiative. The Labour Party’s housing policy is more focused on the so-called ‘mansion tax’ and wouldn’t necessarily curtail Taylor Wimpey’s profitability. IG is offering a binary bet on the outcome of election, and the market is indicating there will be no overall majority.
The company plans to return £300 million to shareholders in the form of dividends, and this would be 20% more than previously estimated. A healthy cash-return is going to grab institutional investors’ attentions, and a solid Q4 from the housebuilder is going to increase the chance of a strong dividend.
According to Halifax, UK house prices increased by 8% in 2014, but the biggest mortgage provider in the country foresees growth of between 3-5% this year. The new tighter lending policies introduced by the Bank of England should provide more stable growth to the UK housing market. Taylor Wimpey is poised to benefit from the changes as steady growth will make it easier for the company to plan ahead for future projects.
The old UK banking model of excessive lending followed by the property bubble bursting only provided short-term gains for the companies like Taylor Wimpey. Keeping with the BoE theme, an interest rate increase is not on the horizon for the foreseeable future. Some economists are predicting a UK interest rate rise at the end of this year, and others are pencilling in 2016 for a rate hike.
The homebuilder will report full-year numbers in March, and traders are expecting revenue of £2.69 billion and adjusted net income of £352 million. These estimations represent a 17% rise in revenue and a 43% increase in adjusted net income.
The company will also reveal its second-half figures in March, and the consensus is for revenue of £1.49 billion and adjusted net income of £211 million. This compares with first-half revenue of £1.19 billion and adjusted net income of £140 million.
Equity analysts are very bullish on Taylor Wimpey, and out of the 19 ratings, 15 are buys and four are sells. The average target price is 157p which is 24% above the current price. Investment banks hold a less bullish outlook for its rival Persimmon. Out of the 19 recommendations, seven are buys, 11 are holds and one is a sell. The average target price is £16.14 which is 8.8% above the current price.
A good final quarter could push the share price to 140p, and drifts lower are likely to find support in the 118p region.