A key item in today’s trading update from housebuilder Taylor Wimpey (TW.) is the revelation that build cost inflation is easing and the company expects the trend to continue into 2020.
Rising costs at a time when house prices have been stalling has led to serious question marks over the sustainability of the sector’s current levels of profitability.
However, the company falls 1.4% to 167.4p reversing earlier gains, as this development isn't sufficient to prevent the company downgrading margin guidance for 2019.
The company said it was on track to deliver-full year 2019 results in line with its expectations, albeit with slightly higher volumes and slightly lower operating margins than guided at the half year.
Sales rates for the year to date remain strong at 0.96 sales per outlet per week, up from 0.81 on-year.
Taylor Wimpey says growth is being driven by improvements in both product availability and build capacity. The order book is worth around £2.7bn, up 13% year-on-year.
The company remains committed to returning around £610m to shareholders in dividends in 2020, a pledge bolstered by an expected £500m year end net cash position and continuing strong cash generation.
AJ Bell investment director Russ Mould notes the alleviating cost inflation and adds: ‘The disappointment then, is that these cost pressures are not yet easing rapidly enough for Taylor Wimpey to maintain its previous margin guidance, even if overall guidance is maintained.’
Shore Capital analyst Robin Hardy believes the company may be bringing sales forward from 2020 to compensate for the reduced profitability and meet targets.
‘Profits are forecast to fall in 2019 so we struggle understand why the Taylor Wimpey board wants to paper over the cracks by robbing out sales from future periods.
‘The promise at the halfway (point) was that this year would see an additional 300 units sold driving additional revenues of around £90m meaning that around £18m of pre-tax profit destined for 2020 would be brought forward - while there are no hard numbers on the revised position it is not impossible that Taylor Wimpey is aiming to push this pull forward by 50-100%.’
