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Taylor Wimpey share price: 4 things to watch out for in its 2018 results

The British housebuilder has faces numerous headwinds, with Brexit a major cause of concern throughout 2018, but the company is expected to end the fiscal year on good footing.

Taylor Wimpey along with other British homebuilders have been able to record strong revenue growth in recent years with the help of UK government schemes like help-to-buy, with investors expecting a strong end to the fiscal year when the company unveils its full-year results on Wednesday.

However, the favourable environment for homebuilders is set to change, with the UK government stating that the help-to-buy scheme will come to an end in 2023, with investors likely homing in on management’s outlook statements on Wednesday rather than bathing in company’s performance over the last 12 months.

The future of Taylor Wimpey

Overall the outlook for the British homebuilder is bright, with housing demand still high across the UK and outstripping supply by a decent margin.

Prior to the 2008 financial crisis, the UK was building around 200,000 news home per annum. In the years that number halved, but in recent years have steadily recovered, hitting a high of 184,000 in 2017. But despite the resurgence in homebuilding, the sector has yet to break through pre-crisis levels and with tens of thousands of new homes needed each year the trend of demand outpacing supply will likely continue.

This ongoing trend will help Taylor Wimpey paint a promising picture of the future over the long-term, with the UK housing market likely in undersupply for some time, helping to keep prices high.

Trading volumes a concern for Taylor Wimpey

Last week, UBS analysts said that they expect the British homebuilder to deliver an operating margin of 21.5% in its full-year results on Wednesday, representing a 21.2% increase on the previous year. If Taylor Wimpey can meet analysts’ expectations the company will end the fiscal year with a pre-tax profit of £856 million, up from £812 million it recorded last year.

UBS analysts also expect Taylor Wimpey’s 2019 volumes to be flat, with average selling prices expected to increase by 2.2% and margins to come down by 60 basis points year-on-year.

‘Sales rates should be flat to down against a still somewhat challenging comparison basis of 0.81 sales per site per week from last year,’ the Swiss bank said in a recent note.

The end of Help-to-Buy and rising rates

Taylor Wimpey’s overall outlook looks positive over the long-term, but the homebuilder is nearing the end of the help-to-buy era and the prolonged low interest rate environment around the world is slowly coming to an end.

It will be interesting to see what the company says about how it plans to combat the myriad of headwinds that it faces in its upcoming results and it will be even more interesting to see how the business weathers Britain’s departure from the EU, with the UK looking increasingly likely to bail out of the bloc without a deal.

The impact of Brexit on the UK housing market

It is difficult to talk about British homebuilders without mentioning Brexit, with just a little over four weeks to go until the March 29 deadline. As it stands, Britain looks on course to leave the bloc in a no-deal scenario with Theresa May delaying another meaningful vote on her new deal and rumours that Article 50 deadline will be pushed back.

It is the sheer lack of clarity and ongoing uncertainty surrounding Britain’s future relationship with Europe that continues wreak havoc on the housing market, with homebuilders like Taylor Wimpey as home buyers put off pulling the trigger on a new home in expectation of a fall in house prices and homeowners fearing negative equity.

This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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