Looking at the 10.6% rise in the Taylor Wimpey (LSE: TW) share price in September, and looking further back over the past 12 months, it seems the stock is being pulled in two directions by two different sentiments — and Brexit has a lot to do with it.
Then, when our Brexit negotiations were looking glum in early October, the Taylor Wimpey price dipped again and lost all of last month’s gain. But positive emanations on Friday resulted in a 10% jump and got us pretty much back to where September ended.
It’s been like that all year, with optimistic spikes alternating with pessimistic dips. Over 12 months, the Taylor Wimpey share price has actually been pretty flat overall, with a 1% gain (against a 2.5% rise in the FTSE 100). But, in between, the price has gyrated between 128p and 192p. There have to be less traumatic ways of breaking even than that.
The negativity just has to be down to the fears that a no-deal Brexit will hammer the housing market, but what effect could it really have? Accountants KPMG have predicted a probable house price fall of 6% in the event of a no-deal Brexit (but have suggested the drop could be as much as 20% in the worst case). The Office for Budget Responsibility reckons on a 10% fall by the middle of 2021.
House prices are slowing, with the Halifax earlier this month saying price growth has slowed to its lowest level in six years, with just a 1.1% year-on-year rise to August. That’s below the rate of inflation, but I’m really not convinced it’s anything to worry about. Many observers have been predicting a correction of some degree as an expected outcome of the rapid pace of house price growth so far this century. House prices can’t keep outstripping wage growth for ever.
Any thought that housebuilders need rising prices in order to keep making profits is simply false. Building land prices tend to echo house prices, and the demand for the two generally goes hand in hand. Where slowing demand will hurt is in actual sales volumes, but we still suffer from a chronic housing shortage in the UK — and no flavour of Brexit is going to change that.
And whatever pressure Brexit might be putting on the housing market, it doesn’t seen to be affecting Taylor Wimpey yet. With the firm’s first-half results, released 31 July, CEO Pete Redfern said: “Despite wider political uncertainty, conditions for the housing market continue to be supportive with good affordability and access to finance. We have not seen any meaningful change in customer confidence, with positive underlying metrics and forward indicators.”
Completions in the half rose to 6,541, from 6,497 a year previously, though pre-tax profit dipped a little to £299.8m, from £301m. The company had £392m net cash on its books, and lifted its interim dividend by 57%. With a special dividend of approximately 11p per share, 2020 is expected to deliver around £610m in dividends, which is about 18.6p per share. On today’s 161p share price, that’s a yield of 11.5%.
The gloom has put Taylor Wimpey shares on P/E multiples of around eight. That’s screaming “buy” to me.
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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.