The Taylor Wimpey (LSE:TW.) share price staged an impressive rally in the second half of 2023 despite continuing tough operating conditions.
The housebuilder stock rose 39.6% over the past 12 month, with much of that growth coming in the latter part of the year.
In fact, over six months, the stock is up 42.5%.
So, what’s going on with the Taylor Wimpey share price?
Interest rates are key
Higher interest rates pose challenges for housebuilders by increasing borrowing costs, reducing housing affordability for buyers, and potentially dampening demand. This can impact property prices, investor confidence, and project viability.
There are several further angles regarding how rising rates influence the market, but a year ago, some analysts were suggesting that we may see house prices drop by 20%. That certainly hasn’t happened.
So, from a macroeconomic perspective, we’ve seen several positive developments. As the year has gone on, the housing market has proven far more resilient than many expected, partially driven by the acute shortage of housing in the UK.
And interest rates have peaked while inflation appears to be moving in the right direction. Towards the latter part of 2023, traders started pricing in cuts to the Bank of England base rate, and this resulted in surging housebuilder prices.
Performing well
On 11 January, the housebuilder said that despite market uncertainties, management anticipated full-year profits would come in at the upper end of the £440m-£470m range.
The company reported 10,848 total completions in 2023, down from 14,154 in 2022, citing challenging market conditions.
The net private sales rate also decreased to 0.54 from 0.65 in 2022. However, private completion prices rose 5.1% to £370,000.
CEO Jennie Daly expressed her optimism amid lowering mortgage rates but acknowledged short-term uncertainty and planning challenges.
Despite a reduced order book at £1.77bn — which represents 6,999 homes, down from 7,499 at the end of 2022 — Taylor Wimpey remains confident in its strong position and the sector’s long-term fundamentals.
Good value?
Housebuilders have looked relatively inexpensive on a backward-looking earnings basis in recent years. That’s because 2021 and 2022 were strong years for housebuilders amid a post-pandemic boom.
So, how does Taylor Wimpey look on a forward earnings basis? Below I’ve listed the forecast earnings per share (EPS) for the next three years along with a price-to-earnings (P/E) ratio based on the current share price.
| 2023 | 2024 | 2025 | |
| EPS (p) | 9.55 | 9.28 | 10.86 |
| P/E | 15.5 | 15.9 | 13.6 |
There’s certainly an argument here that Taylor Wimpey isn’t looking overly cheap. And that’s despite its 6.33% dividend yield.
In the long run, I expect the industry to recover fully, I’m just not sure whether this is the right moment to buy, and whether there’s better value elsewhere. After all, I can find a host of companies with growth earnings growth and lower P/Es.
