Taylor Wimpey’s [TW.L] share price has had a rough 2020. Measures to contain the spread of the coronavirus have resulted in severe delays for the UK’s construction industry. When the first lockdown began in March, construction sites were allowed to remain open as long as workers stood two metres apart. The impracticality of the rule meant that it wasn't feasible for many sites to remain operational. As a result, Taylor Wimpey’s share price fell to a low of 99.18p in mid-September, a 42.9% year-to-date decrease, and lower than the level to which it fell during the March selloff.
In the months since, Taylor Wimpey’s share price recovered again before being laid low in late October, then rallying once more throughout the start of November and in the build-up to an earnings update from the company, released earlier this week.
As of 9 November’s close, Taylor Wimpey’s share price of 146.25p was up 47.5% from its September low, but is still 15.9% down for the year to date.
Construction slowing down
Perhaps unsurprisingly for the six months to the end of June, Taylor Wimpey — one of the UK’s largest housebuilding companies — saw its revenue plummet 56.4% from £1.73bn in H1 2019 to £754.6m. It posted a net loss of £31.5m compared to a net profit of £242m for the first six months of the previous year. As a result, adjusted earnings per share were a fraction of what they were in H1 2019: a loss of 0.7p versus a profit of 7.4p. These results saw Taylor Wimpey’s share price drop, but it was already trading well below its February highs before the earnings call.
The impact of the coronavirus has meant that total homes completed by Taylor Wimpey fell 57.6% year over year from 6,541 in H1 2019 to 2,771 in H1 2020. The company incurred £4.7m in costs related to extended building durations and reduced productivity levels as a result of the delays. A further £4.6m was spent on ensuring that sites met the proper health and safety standards.
In its trading update this week, Taylor Wimpey reported that its trading book stood at £3bn, an 11% increase on 2019’s £2.7bn. The company pointed to its strong balance sheet and cash flow, both of which seem to have bolstered investor confidence in Taylor Wimpey’s share price.
Taylor Wimpey's trading book value
The construction firm suggested that, by the end of the year, it expected net cash to be in the upper end of its guidance range of £550m–£750m — the low end of this range would represent a 0.8% increase on the £545.7m recorded for 2019.
Disruption will continue
In July, executives at Taylor Wimpey said it was operating at 80% capacity and that it would be delivering on 40% fewer builds than previously forecast. It now expects the majority of Q4 builds to be completed in Q1 2021.
Despite the delays, reduced productivity and loans totalling £104.5m as of the end of June, its net cash should mean it is well placed to deal with the ongoing uncertainty. This should allay any concerns investors may have, reducing the potential for volatility in Taylor Wimpey’s share price.
In the long term – once construction sites become fully operational again – Taylor Wimpey’s share price should be boosted by UK prime minister Boris Johnson’s plans to turn “generation rent” into “generation buy” through the help to buy scheme of 5% deposit mortgages.
“We view a likely improvement in sales trends versus the sector into 2021, increased focus on 2022 earnings, and an absence of further downgrades from here as potential catalysts for [Taylor Wimpey’s] outperformance,” wrote Credit Suisse analysts in a recent note seen by Proactive Investors. The analysts boosted their rating from Neutral to Outperform and increased their price target from 154p to 158p.
The consensus for Taylor Wimpey among 14 analysts polled by MarketBeat was to Buy the stock, a rating held by eight analysts, while six rated it a Hold. The 168.69p target assigned to Taylor Wimpey’s share price would represent a 15.3% uptick on its price as of close on 9 November.
|PE ratio (TTM)||12.10|
|Quarterly revenue growht (YoY)||-56.40%|
Taylor Wimpey's share price vitals, Yahoo Finance, 10 November 2020