Homebuilder Taylor Wimpey has made a solid recovery since the slowdown in housebuilding activity caused by the Covid-19 pandemic. Despite strong results, substantial dividends and an optimistic outlook, rising inflation and a slowing housing market could drag the stock down.
One of the largest home construction companies, Taylor Wimpey [TW.L] releases its half-year results on 3 August. The business posted an impressive set of results in its last update and went onto state in April that it predicts to be in line with full-year expectations.
With inflation continuing to have damaging effects on the state of the UK economy, one area this has impacted is the housing market. The Taylor Wimpey share price had been slow to recover from the lows of the pandemic when it reached 101.50p during intraday trading on 3 April 2020. However, with multiple pressures combined to dampen economic outlooks, the housebuilder has struggled over the last three years.
The stock rose a meagre 4% in 2021 and as of 1 August, the Taylor Wimpey share price has plummeted by close to 30% year-to-date. The stock had hit a 52-week low of 110.30p on 11 July. Investors will be hoping this week’s announcement will help turn its fortunes around.
Taylor Wimpey on track for ‘modest growth’
The company’s pending results are coming off the back of a strong set of comparatives. For its full-year results released back in March, Taylor Wimpey saw its revenue grow by 53.6% year-on-year to just shy of £4.3bn. Additionally, pre-tax profits skyrocketed by 157% compared to 2020, while its basic earnings per share also jumped by 142.9%.
Within the update, chief executive Pete Redfern highlighted the strides the business had taken in its recovery. He also talked of the firm’s confidence in “delivering modest growth in completions in 2022 and of making further progress towards our operating margin target”.
The review also alluded to the variety of challenges the business was set to face, and in April the firm reinstated to investors that it was trading in line with full-year guidance. The company said it’s on track to deliver on the targets it set out at the end of 2021, including an operating profit margin of 21–22%.
Strong dividend turns out to be major pull
Taylor Wimpey also finds itself in a healthy financial state. Net cash rose 16.3% across 2021. And as a result, it has just completed the second tranche of a £150m buyback programme. Earlier this year the business drafted the help of Credit Suisse during the process. The aim of the programme is to ‘return excess capital to the Company’s shareholders,’ while the move will also enhance earnings per share.
On top of this, the stock also offers a strong dividend. With inflation reaching 9.4% in the UK for June, this may draw traders to Taylor Wimpey. Its current yield is around 7%. And with a strong cash balance of £921m, along with a secure order book of nearly £3bn, the firm is in an able position to pay out.
With its last update, Taylor Wimpey was confident that continuous house price growth would be strong enough to offset the rising costs of materials and labour. However, with biting pressures testing the robustness of the business, many are anticipating a mixed outcome. With peers such as Persimmon [PSN.L] providing a mix of results so far, Taylor Wimpey may find itself struggling in the face of these headwinds.
Analysts bullish on Taylor Wimpey shares
Regardless of the challenging conditions, the majority of analysts adopt a positive outlook for the firm. According to The Wall Street Journal, 11 out of 15 analysts place a ‘buy’ recommendation on the stock. With a high price target of 161p and a median of 163p, this shows experts expect to see an upside from its last close price of 128p.
According to the Financial Times, 15 analysts offering 12-month price targets for Taylor Wimpey have a median target of 186p, with a high estimate of 280p and a low of 104p. Of this total, seven place a ‘buy’ recommendation on the stock, while 11 have an ‘outperform’ rating.