The Taylor Wimpey (LSE: TW) share price has been on a downward trend since the beginning of the year, largely due to the Covid-19 pandemic that has hit the stock markets in March. The giant British house building company suffered a £39.2m loss in the first half of the year as a result of the lockdown, and its shares dropped to the lowest levels since 2013.
But shares of Taylor Wimpey gained over 20% since late September, and despite the ‘coronavirus mini-crisis’ that is currently threatening the markets, its shares could be trading at a discount right now. Here are the reasons why.
Generation Buy?
At the time of the lockdown, many analysts have predicted that the number of house sales in the UK would drop significantly and prices may fall by around 5-10%. A falling housing market is obviously a bad sign and a big concern for policymakers.
The British government, therefore, has taken a number of measures to help large businesses like Taylor Wimpey to overcome the challenges ahead. Prime Minister Boris Johnson announced his plans to turn Generation Rent into Generation Buy, which will allow more mortgages to be offered with a 5% deposit. Since Johnson’s announcement, Taylor Wimpey shares spiked around 3.4%.
Additionally, the government’s stamp duty holiday, which will be deployed from July 2020 to March 2021, proved to come at the right time for the UK housing market and Taylor Wimpey.
Fundamentals are still strong
Taylor Wimpey has suffered amid the housing market mini-crisis, reporting an operating net loss of over £16 million in Q2. But at the same time, Taylor Wimpey continues to maintain a healthy balance sheet, and all forward indicators remain relatively strong.
The company has £104.5m of debt, a small increase from £89.3m in 2019; however, when taking into consideration the net cash of £497.3m, Taylor Wimpey clearly has a safety net to guard against future crises. Though there is still uncertainty in the short term in the form of another round of Covid-19 lockdown and the Brexit implications, the company’s outlook seems pretty good with a 206% increase in appointments booked and low cancellation numbers throughout 2020.
The takeaway for investors
Taylor Wimpey’s share price has dropped around 27% since the beginning of the year and slightly below 50% from its yearly high in February. The company faces a number of risks and uncertainties, particularly if another lockdown may happen in the UK.
Nonetheless, I think Taylor Wimpey shares are currently trading at a discount and are likely to return to pre-Covid-19 levels. Taylor Wimpey is not only one of the largest house building companies in the UK with a market capitalisation of £4.36bn, but it is also one of the companies considered as ‘too big to fail’ (and not too big to save). All in all, as house prices are rising in the UK and the market seems to recover, Taylor Wimpey clearly appears to be a good long-term investment opportunity right now.
