Investors welcomed the latest trading update from leading housebuilder Taylor Wimpey (TW.) despite the firm posting a near-30% drop in pre-tax profit for the first half of the year.

Moreover, while net private reservations were lower and cancellations were higher, the company reported its order book remained ‘healthy’ and raised its outlook for full-year completions to the top of its forecast range, sending the shares up 2.5% to 117p.

A TOUGH YEAR FOR NEW-BUILD HOUSING

Sales for the first six months were down 21% to £1.64 billion, while pre-tax profit slipped 29% to £238 million reflecting a lower level of completions and continued build-cost inflation.

It has been a rollercoaster 12 months for housebuilders, with demand falling off a cliff in the final quarter of 2022 as mortgage rates spiked following disruption in the gilt market due to the disastrous ‘mini budget’ followed by a bounce-back in the first quarter of this year as the spring selling season kicked off.

However, market conditions softened again in the second quarter as the Bank of England hiked the base rate to 5% due to higher-than-expected inflation and mortgage rates returned to their late-2022 highs above 6%.

Across the half, Taylor Wimpey registered a sales rate of 0.71 units per outlet per week, but excluding bulk deals net private reservations were only 0.62 units per week against 0.88 in the first six months of 2022 and as of the end of July that rate had dropped further to just 0.47 units per week.

At the same time the cancellation rate has climbed from 15% in March to 24% at the end of July as new buyers give up on their dream of home ownership due to affordability.

According to the Nationwide building society, for someone earning the average wage and looking to buy a typical first-time buyer property with a 20% deposit, the monthly mortgage payment assuming a 6% interest rate would equate to 43% of their take-home pay, compared with 32% a year ago, which on top of soaring food and energy bills is a huge stretch.

SURPRISINGLY POSITIVE GUIDANCE

Against the odds, Taylor Wimpey says it now expects full-year completions excluding joint ventures to reach between 10,000 and 10,500 units, at the top end of the 9,000 to 10,500 guidance it gave in its April trading update, due to ‘strong underlying interest’.

The firm is also forecasting a full-year operating profit including joint ventures of between £440 million and £470 million, while the latest company-compiled consensus is expecting £444 million, although its year-end net cash balance projection of £500 million to £650 million looks well below the consensus estimate of over £800 million.

‘As we move into the second half of the year, our focus remains on optimising all areas of our operations as we continue to support our customers during this uncertain period’, commented chief executive Jennie Daly.

‘We remain well positioned with a strong balance sheet, high-quality landbank in desirable locations where our customers want to live, and strong and experienced teams’, added Daly.

LEARN MORE ABOUT TAYLOR WIMPEY

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