Taylor Wimpey’s [TW] share price has been in a slump for much of 2020. Many investors sold up when the coronavirus stopped construction, triggering a steep reduction in the share price.
That said, Taylor Wimpey’s share price as it stands could be an opportunity for the canny trader to invest in the company at a discount. The current miniboom in the UK housing market driven by the government’s stamp duty holiday and a resurgence in demand for new build properties — the company’s specialism — both suggest Taylor Wimpey’s share price could be set to rise. On the other hand, the possibility of further economic disruption could put an abrupt end to the boom.
So, is Taylor Wimpey’s share price really trading at a discount?
What's happening with Taylor Wimpey's share price?
Taylor Wimpey's share price hit a year high of 237.7p on 20 February, before lockdown stopped homebuilding across the UK. By 3 April, Taylor Wimpey's share price had plummeted to 101.5p — a 57.3% decline from its year high. Although the stock isn't quite that low right now, it has only marginally recovered and has been trading at circa 120p for the last month.
Why Taylor Wimpey's share price could be a bargain
A look at Taylor Wimpey's half-year results shows why investors have been cautious. In the results, revenue dropped 56.4%, sinking from £1.7bn in the first half of 2019 to £754.6m in the first half of this year. Likewise, last year's £311.9m profit turned into a £16.1m loss.
That said, the results also highlighted Taylor Wimpey's robust balance sheet. The company held £497.3m in cash in the first half of 2020, up from £392m in the same period last year.
Another area that suggests the worst could now be behind Taylor Wimpey is its order book. As of 28 June 2020, the homebuilder had 11,686 homes on order — an increase of 1549 homes compared to its order book on 30 June 2019. In the nine weeks after re-opening its sales centres, Taylor Wimpey reported a 206% increase in viewing appointments. Rival Persimmon [PSN] has also reported a similar bounce back as initiatives including the stamp duty holiday lure buyers back to the market.
"Looking ahead, balance sheet strength, a long order book and our high quality and growing landbank gives us confidence in our ability to navigate the challenges and emerge stronger from the pandemic. While uncertainties remain, we are confident in the underlying fundamentals of the housing market," said Taylor Wimpey boss Peter Redfern during the earnings call.
“While uncertainties remain, we are confident in the underlying fundamentals of the housing market” - Taylor Wimpey CEO Peter Redfern
CEO and executive director picks up shares
Among those buying while Taylor Wimpey’s share price is reduced is group chief executive and executive director Peter Redfern. Scooping up another £744,000 worth of shares, Redfern has increased his holding by 38%. It's good to see a company’s management putting their money where their mouth is, although Redfern did sell off £3.7m worth of shares back in November 2019.
Redfern could be confident that the UK housing market will bounce back, along with Taylor Wimpey's share price. Recent data from Rightmove show that enquiries jumped 75% since the start of July, while enquiries about new builds have leapt 21% since 11 June.
While this demonstrates a renewed demand for new builds, there could be trouble further down the road. The UK is facing a historic recession that could stall the housing market’s miniboom. The future of Taylor Wimpey's share price is heavily reliant on such macroeconomic factors.
Year-on-year increase in buyer enquiries, in Britain, since start of July
Still, analysts polled by the Financial Times seem confident of Taylor Wimpey's future. The stock carries an average 157p price target, which would see a 33.3% upside on Taylor Wimpey’s share price as of 25 August’s close.
Of the 18 analysts tracking Taylor Wimpey on the Financial Times, two rate it a Buy, nine an Outperform and seven suggest holding the stock.