Today’s trading statement from Taylor Wimpey (LSE: TW) is highly encouraging and shows that the company, and sector, could have a bright future. For example, Taylor Wimpey has increased total home completions by 6% to 12,454, with average selling prices increasing by 12% to £213k. In addition, the company has a record order book, which has increased in value by 12% to £1397 million and represents 6601 homes, which it views as being the optimum size at this point in the business cycle. Despite this strong update, shares in Taylor Wimpey are flat thus far today.
A More Sustainable Outlook
A key point made by Taylor Wimpey in today’s update is that it anticipates a more sustainable housing market moving forward. While this may cause investors to become somewhat cautious regarding the sector’s future prospects, it could be good news for house builders such as Taylor Wimpey. That’s because it should allow more completions to take place and, while the price achieved for each sale may not rise at the same high rate as was the case in 2014, top and bottom line growth should remain relatively robust. That’s especially the case since increased house building remains an issue where there is a strong political consensus among the major political parties.
This bright outlook manifests itself in strong growth forecasts for Taylor Wimpey and for many of its sector peers. For example, Taylor Wimpey is forecast to increase its bottom line by 34% in the current year, and by a further 14% next year. This, combined with a price to earnings (P/E) ratio of just 8.7, equates to a price to earnings growth (PEG) ratio of only 0.3, which screams ‘growth at a reasonable price’ and means that Taylor Wimpey could be a star performer in 2015 and beyond.
Clearly, Taylor Wimpey isn’t the only house builder with excellent potential. The likes of Persimmon (LSE: PSN), Bovis (LSE: BVS), Bellway (LSE: BWY) and Berkeley (LSE: BKG) all have huge potential, too. And, with them offering diversification in terms of regional variation, different price points, as well as reducing company-specific risk, it could be worth buying a slice of multiple house builders – especially if you’re seeking a mix of value, growth and income.
For example, Persimmon has a PEG ratio of just 0.5 and a yield of over 6%, while Bovis and Bellway both have PEG ratios of 0.3 and yield 4.7% and 3.8% respectively. And, although Berkeley’s PEG ratio of 0.9 isn’t quite as impressive as those of its rivals (although it is very much so on a standalone basis), it remains a hugely appealing stock, with its yield of around 6% being very enticing.
So, while the UK housing market will almost inevitably endure a period of slower growth, with increasing interest rates, a lack of affordability and a new era of austerity following the General Election in May set to hold it back somewhat, the house builders mentioned above seem to offer huge margins of safety, excellent growth prospects and considerable yields. As such, they appear to have very promising futures ahead of them.
Peter Stephens owns shares of Bellway, Persimmon, Berkeley and Taylor Wimpey. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.