Taylor Wimpey (LSE: TW) is a FTSE 100 stock that has endured a tough year to say the least. The housebuilding company’s share price has fallen 37% over the last 12 months, currently trading at 106p.
Much of this fall materialised in August, when the stock decreased from 128p to 108p across the month. It reported a big decline in net cash with its half-year results. This led to many investors abandoning it.
However, with a FTSE 100 constituent taking such a heavy beating, now may be the perfect time for me to grab shares at a bargain price. Let’s take a look.
Considering the cash
The company’s net cash fell from £906.5m to £642.2m, a 26% decline in a year. Work-in-progress constructions were significantly delayed by prior covid-linked restrictions. Also, build cost inflation has increased to an estimated 9-10% this year. This led to Taylor missing typical cash inflows as construction deadlines weren’t met and operational expenses rose. Clearly this has turned investors away.
Yet this didn’t hit the operating margin, which remained at £424m. Expanding operations in Spain have brought in an additional £18m profit as the total number of homes completed rose from 83 to 203. This partially offset the impact of domestic conditions.
Estimates for net cash for the end of the year still fall to £600m. However, the company has opened 50 new property developments this period. Also, management will further increase land investment. While continued decreases in net cash may scare off investors, I think this is the right move for the firm. It’s clear the company is preparing to hit the ground running in FY23 as a Covid-driven aftermath retreats and housing prices stabilise.
Despite net cash raising red flags, I think management has its financials under control. The company has mitigated macroeconomic impacts and is gearing up for a growth-focused FY23. That’s why I think the shares will be a great buy for my portfolio — particularly after such a heavy fall this year.
The industry perspective
While I have little concern over the builder’s net cash, a broader look at its position in the property sector does raise some worries. Nationwide economist Robert Gardner stated: “There are signs that the housing market is losing momentum.”
Persimmon‘s share price has plummeted 50% across the last year. The company’s home completions fell 11% to 6,652. Its pre-tax profit fell from £480m to £439m. Market’s conditions have clearly created struggles for many industry leaders.
Yet competitor Berkeley has only suffered a 21% fall over the last year. It’s one of the few homebuilders that actually increased pre-tax profits across FY21, rising 6% to £551m. This resulted from the sale of 3,760 homes, representing a 25% increase against the year previous.
While not in the lead, it’s clear Taylor Wimpey has managed to mitigate industry conditions to a considerable extent with a 37% decline in share price. This is partially due to operational developments in Spain. Also, continued outlet development and land investment also seems to have kept some investors hopeful for the company’s future growth.
Indeed, I think net cash will begin to stabilise. With healthy prospects for FY23 I’ll be looking to add Taylor Wimpey shares to my portfolio.
