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Why I believe the Taylor Wimpey share price will continue to beat the FTSE 100

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We’ve seen a weak 12 months for Taylor Wimpey (LSE: TW), as shares in the FTSE 100 housebuilder have dropped by 6% while the Footsie itself has gained 3%.

But they’re still up more than 55% over five years, which includes a big Brexit dip in June 2016. Fears that Brexit would lead to a house price collapse subsided soon after the vote and the slump was reversed pretty quickly, and I don’t see current fears of a significant downturn bearing fruit either.

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My colleague Peter Stephens has explained that, with UK economic growth looking feeble and consumer confidence weakening, there’s a fair bit of uncertainty surrounding the outlook for the housing sector at the moment. And the fact that Brexit itself is now only eight months away seems likely to bring those mid-2016 fears back into focus.

Buy or sell?

So, are you likely to be burned if you buy Taylor Wimpey shares now? Well, the number of houses on the market has been falling for most of this year as fewer people look to move upwards — and slowing house prices are continuing to dissuade folks from selling. 

Yet the market for new houses seems to be stable. According to Taylor Wimpey chief executive Pete Redfern in the most recent update at the end of April, the firm has “continued to see good demand for new housing through early 2018.” Mortgages are still readily available, and interest rates are at long-term lows.

Earnings growth at the company is forecast to slow considerably, but that still leaves a forward P/E of under nine for a stock set to deliver dividends in excess of 8% and rising. The next few months could be a great time for bargain hunters. 

Commercial property

Shares in commercial property firm Intu Properties (LSE: INTU) have fared far worse than Wimpey’s, losing more than half their value in a little over three years. And that wasn’t helped by a 7% dip Thursday on the day the firm’s first-half figures were released.

The numbers themselves seemed overshadowed by news of the departure of chief executive David Fischel, after a planned merger with Hammerson (LSE: HMSO) came to nothing. The initial offer would have seen Hammerson take over the shopping centre manager for around £3.4bn, but ultimately, aborted bids by French rival Klépierre led to the whole thing being called off.

Intu was left with costs of £6.3m relating to the incident, essentially in legal fees and advisors’ charges, and that didn’t help a first-half update which spoke of weakening sentiment in the retail market causing an impact on shopping centre valuations.

Rental fine

On the upside, an occupancy level of 97% was impressive, and like-for-like net rental income grew for the fourth consecutive year, even if only at 1.3%. 

But what probably spooks investors the most is a £650m asset hit from property revaluation leading to a fall in adjusted net asset value per share from 411p at 31 December to 362p.

On the earnings front, things were flat with underlying EPS unchanged from a year previously at 7.3p, and the interim dividend was held at 4.6p per share.

Looking forward, P/E ratios of around 12 seem reasonable to me considering the increasing weakness in bricks-and-mortar retail, but forecast dividend yields approaching 8% do grab my attention. I still see Intu as a decent long-term investment.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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