Taylor Wimpey builds on bumper dividend with 'very strong' start to 2017
As it posted largely pre-announced annual results, Taylor Wimpey said it had made a "very good" start to 2017 and suggested the UK housing market will remain supportive for its bumper dividend programme for some time.
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Taylor Wimpey
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08:15 26/04/24
With the market having stabilised quickly after the Brexit referendum, the first weeks of 2017 to 19 February have seen net private sales increase to a very strong 0.91 compared to 0.77 in the equivalent period last year.
The FTSE 100 company's total order book value of £1.98bn is roughly flat, being about 49% forward-sold for private completions.
Management expects underlying building costs to increase at a similar level to last year, around 3-4%.
For 2016, revenue was declared at £3.68bn, a rise of 17.1%, with operating profits up 20% to £764.3m and adjusted profit before tax rising 21.5% to £733.4m.
The consensus forecast was pointing towards PBT of £731m.
As already announced, an ordinary dividend of roughly £150m and a £300m special dividend will be paid to shareholders in July, given shareholder approval, equating to 13.8p per share.
"In 2016 we delivered an excellent performance set against an uncertain political and economic environment that stabilised in the final quarter," chief executive Pete Redfern said.
"The outlook for 2017 is for ongoing stability and incremental price growth, which is a healthy backdrop for our business and our customers."
On the outlook, the company observed that the early signs of stability and resilience of the market following the EU referendum had continued and it believes the risk of material impact from this in the short term has significantly reduced.
"In line with our strategy, we will continue to closely monitor market risks, particularly around long term mortgage cost. However we believe that a cautiously regulated market and low interest rate environment is likely to prolong the period of stability that we are seeing in the UK housing market," it said.
Reaction
TW shares wavered slightly higher and lower in the first two hours of trading on Tuesday, and by 1015 GMT were up 0.4% at 179.1p.
Broker Canaccord Genuity said the striking number in the release was the private sales rate for the year to date, which at 0.91 "is very strong and better than what peers have pointed to recently".
"While guidance for 2017 has not changed materially, it looks to us that consensus for 2017 will be very well supported with mid-single-digit percentage growth in PBT looking likely for 2017, given the good macro signs recently and particularly strong start to the year," the broker added, noting that the shares offer a dividend yield of over 7.7%.
Shore Capital said profits beat its expectations thanks to the Spanish operations, where profits doubled to £20m.
Also highlighting the significant increase in the sales rate per week per site, analyst Robin Hardy bemoaned a shortage of detail from the company.
"As London is reported to be softer and would normally show the highest sales rates, it would have been useful to know if this is a notable trend that could affect forecasts or more anomalous," he said. "The forward sales position is strong but in this cycle the house builders have built very long lead times and order books and legal completions have largely decoupled."
George Salmon at Hargreaves Lansdown did find the details telling, saying: "While the group acknowledges the importance of managing the cycle in such an economically sensitive industry, it is confident enough to say that much of the risk and uncertainty around the Brexit vote is disappearing into the rear view mirror.
"The ratio between average income and average house prices might be well above historic levels, but for many buyers it is the cost of the monthly mortgage payment that is important, not the overall price of the property. Demand continues to outstrip supply and record low interest rates mean affordability remains high even as prices rise. Viewed from this perspective, it is easy to see why the group is bullish."
However, Salmon pointed out that with the UK housing market a fickle mistress, the shares' 7.8% yield showed investors remains cautious.
Russ Mould at AJ Bell's eyebrows were at their upper limit as he observed the bullish statement received only the merest ripple in reaction.
“In these income-starved times of record-low interest rates and depressed bond yields it is hard to believe that a FTSE 100 stock barely moves when the management team affirms dividend plans that equate to a 7.7% yield for 2017,” he said.
“But shares in Taylor Wimpey are shrugging at exactly such an announcement this morning, in the same manner as those of Persimmon did yesterday, as investors look for volume growth to provide insurance against cost increases, boost dividend cover and reassure that the housing market remains in good health."