These are uncertain times for the house-builders, which took a major hit after the Brexit vote and have only recently shown signs of recovery. Yet the UK property market continues to boom, with prices up 6.5% in the past year, according to latest Halifax data, while the housing crisis only seems to worsen. So what do today’s results from Taylor Wimpey (LSE: TW) tell us about the sector?
Far from Wimpey
There was certainly no sign of crisis in today’s numbers. 2016 home completions totalled 13,881 including joint ventures, up 4% on 13,341 in 2015. Average selling prices on private completions increased 13% to £286,000, up from £254,000 in 2015, helped by better quality locations. Its overall average selling price increased 11% to £255,000, up from £230,000.
Taylor Wimpey’s net private reservation rate was 0.72 homes per outlet per week, down marginally from 0.73, while its cancellation rates remained low at 13%, against 12% before. So no worries there. It ended the year with net cash of around £365m, up from £223.3m in December 2015. That is after paying dividends totalling £355.9m in 2016, up from £308.4m in 2015. Lucky shareholders.
Chief executive Pete Redfern talked up rising completions, robust trading, a strong forward order book and predicted full-year profitability at the upper end of consensus, despite challenging conditions. Which all looks positive to me but investors are clearly cautious about the sector, with the share price nearly 2% down in early trading.
That may be partly down to the Taylor Wimpey super soaraway success story, which has seen the share price rise a stonking 352% in the last five years. It’s also up 21% over the last three months, as investors decided initial fears over the damage Brexit might inflict on the house-building sector were overdone.
The sector has delivered mixed results in recent weeks, with Bovis Homes Group (LSE: BVS) delivering a shock profit warning shortly after reporting that it was on course for record revenues. This knocked values across the sector but turned out to be a company-specific problem, caused by delays in getting the final sign-off for 180 houses before the end of the year.
Last week, Persimmon (LSE: PSN) soothed fragile nerves by reporting an 8% rise in 2016 revenues to £3.14bn, with new home volumes up 4.1% to 15,171, and the average selling price rising 4% from £199,127 to £206,700. Healthy customer demand, low mortgage rates, and the attraction of buying a new-build are all sustaining sales, management said.
Build, baby, build
Personally, I believe the house-builders have been oversold, and I’m evidently not alone in this, as investors have been rushing in lately. Taylor Wimpey is up 13% in the last week alone, yet still trades at a far from demanding forecast valuation of just 9.6 times earnings, while the yield is a forecast 7.9%.
Forecast earnings per share figures suggest a sharp slowdown from 17% last year to -1% in 2017, and a slight recovery to 4% in 2018. So investors must brace themselves for some volatility. Rising interest rates would hit sentiment, although I don’t foresee much upward movement in the UK. While the housing shortage continues, companies like Taylor Wimpey should continue to build on their recent success.
The doom-mongers said Brexit would be a disaster for the UK, until the FTSE 100 surprised everybody by rebounding to new highs.
However, this is still a phoney war and the turbulence may return with a vengeance once Prime Minister Theresa May triggers Article 50.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.