- Completions and order book lower
- Cancellations up sharply in second half
- Net cash better, earnings guidance maintained
Housebuilder Taylor Wimpey (TW.) delivered a mixed trading update to close the week, much in line with peers Barratt Developments (BDEV) and Persimmon (PSN), but it seems investors took away more positives than negatives.
After initially dipping 1p to 111.5p, the shares quickly reversed to add 1p to a three-month high of 113.6p.
PROFIT TARGET CONFIRMED DESPITE SLOWDOWN
For the year to December, new home completions were broadly in line with 2021 as expected at 14,154 units including 2,920 affordable homes against 2,501 the previous year.
Average UK selling prices on private completions rose 6% to £352,000, leading to an improved operating margin, and the firm ended the year with an order book valued at £1.94 billion representing nearly 7,500 homes excluding joint ventures.
On a less positive note, private reservations per outlet per week dropped to 0.68 from 0.91 in 2021, with a second half reservation rate of just 0.48, and cancellations jumped from 14% in 2021 to 23% in the second half.
Cash generation was better than expected with net cash at year-end of £864 million thanks to better margins and a ‘highly selective’ approach to land buying as well as tight control on releasing work in progress.
Operating profits are seen in line with market forecasts of around £920 million, and the company has begun an efficiency drive which is expected to generate net cost savings of £12 million per year.
CONFIDENT IN THE MEDIUM TERM
The firm started the year with a lower private order book than in recent years and expects volumes overall to reduce in 2023, but remains ‘confident that the medium to long term fundamentals of our business remain highly attractive’.
Most observers expect average house prices to fall between 5% and 10% this year, while living costs are still rising at a double-digit rate and mortgage interest rates have leapt.
After nine interest rates by the Bank of England since December 2021, the average monthly mortgage payment for new first-time buyers was almost 40% of a single full-time salary after tax in the final quarter of last year according to the Nationwide building society, the highest level since 2008.
Like the other housebuilders, Taylor Wimpey has been through plenty of downturns before and its balance sheet is in decent shape so there would seem to be no reason for shareholders to panic at this stage.
