One of the UK’s largest housebuilders, with a presence across the country and a good track record of buying strategic land, and profitably building and selling new homes.
The company benefits from a good management team, which has a long track record of demonstrating strong capital discipline and a focus on improving returns. Taylor Wimpey’s long order book and valuable land bank are attractive characteristics, as its prodigious cash generation. The business also has a division operating in Spain, which is small in the context of the group but delivering strong growth.
The business came into being in its current form, in the 2007 merger of Taylor Woodrow and George Wimpey.
Investment case summary
In 2017, an increasingly benign view of the UK’s economic prospects combined with the wider market’s antipathy towards domestically exposed businesses in the aftermath of the EU referendum, created a contrarian opportunity to revisit the UK housebuilding sector for the first time in many years. In doing so, Taylor Wimpey emerged as one of several housebuilders that have looked attractive enough to force their way into the portfolios.
UK housebuilders and the construction industry more broadly, now look poised to benefit from structurally positive fundamental dynamics, in a long-term opportunity underpinned by the public sector. Fixing the UK’s ‘broken’ housing market inevitably means building many more homes and, although some have concerns about valuations, from an affordability perspective, with interest rates at record lows, mortgage repayments represent a much smaller part of take-home pay than is normally the case.
Taylor Wimpey is well-placed to continue to increase the volume of houses it builds, supported by a valuable land bank and a planning system which is, in the words of its chief executive “now more balanced and effective than at any point over the last 30 years”. The company has an explicit strategy to deliver enhanced shareholder distributions over the next five-to-ten years by reducing the length of its land bank to a more appropriate level. As a result, we view it as a high-quality business delivering a very attractive and sustainable income stream. Over time, as the market recognises that this business is nowhere near as challenged by the economic outlook as its share price would imply, we expect it to return to more appropriately attractive valuation territory.
|Income Focus Fund||4.22%|
|Equity Income Fund||3.45%|
As at 31 March 2019
|Themes||UK domestic exposure|
We’ve seen strong full year results from Taylor Wimpey this morning and confirmation of a positive start to its new financial year. Growth in completions of 2.9%, along with a 2% increase in average private selling prices, has contributed to profit before tax +5.5% to £857m and earnings per share +5.4% to 21.3p.
The financial strength of this business and its confidence in the future, is most evident, however, in its dividend commitments. An enhanced ordinary dividend of £250m will be paid in 2019. This equates to 7.6p per share, so an ordinary yield of 4.4%, based on the prevailing share price, at the time of writing, of 173p. This will be sustained through the cycle and has been stress-tested against a 20% fall in house prices and a 30% fall in volumes. In addition, a further £350m will be returned in July by way of a special dividend. This is 10.7p per share and a further 6.2% in yield. Overall, this equates to 18.3p per share and a total yield of 10.6%.
Meanwhile, Taylor Wimpey has made a very strong start to the new year. An underlying net private sales rate of 0.9 is exceptional. The company is on track for a stable 2019 before the re-acceleration of volume growth in 2020, as new sites come on stream.
27 February 2019