House builder Taylor Wimpey’s share price has dropped 4% today despite announcing a solid rise in both underlying profits and revenue in line with analyst forecasts. Higher sales prices of its homes provided the foundation for the strong set of figures. The only minor disappointment, and presumably the root cause of today’s share price slide, was a reported dip in the company’s year-on-year order book. Nonetheless, market participants reacted with a largely positive tone.
Analysts Jefferies commented:
“It’s not rock’n’roll but it is built on rock. As we lap the 10th anniversary of the darkest year of the credit crunch, it is good to remember how much of Taylor Wimpey’s cash generation and stability we can now take for granted. We view these results as a strong and high-quality canvas on which the group can paint a medium-term vision at its capital markets day in May.”
Profits for the 2017 calendar year improved by 10.7% and revenue by 7.9%. Total profits came in at £812 million ‘before exceptional items’ and total revenue £3.97 billion. Profits were a touch off the upper range of forecasts which had hoped for £818 million. While Taylor Wimpey’s reported order book of 8415 homes was just off the previous year’s 8573, the main influence on today’s share price slide may well have been the context of peer Persimmon’s highly impressive results, which it announced yesterday.
Final profits, including exceptional items, took a hit as a result of a £130 million provision for sorting out a mess involving leasehold buyers between 2007 and 2011. They are subject to ground rents doubling every decade over 50 years as a result of the freehold having been sold to another buyer. Explaining the situation, Taylor Wimpey commented:
“We continue to view the provision, before tax, of £130 million as an appropriate estimate and we have made good progress in securing agreements with freeholders representing over 90 per cent of historic leases with a ten-year doubling ground rent clause, to enable our customers to convert to a RPI-based structure [retail price index], should they elect to participate in the assistance scheme we announced last April.”
Over the course of 2017, the company completed construction on a total of 14,842 homes, which included its operations in Spain and participation in joint ventures. Average UK sales prices rose 2.5% to £264,000.
Taylor Wimpey’s results were by no means poor and most analysts have the company’s stocks at a ‘hold’ rating. However, for those investing online in ISAs and SIPPs, and considering new shares to add to their portfolios with online stock brokers, there may be an element of doubt as to how much value is left in the company and other house builders, who have seen strong gains over the past year. Taylor Wimpey is up a massive 50% from its post-Brexit vote low.
Commenting on the prospect for further gains, Neil Wilson of ETX Capital stated:
“…even with the Bank of England set to raise rates, the market still looks very accommodative. The question is whether following the post-Brexit rally, there is any value left in these stocks”.