Homebuilder Taylor Wimpey's [TW] share price is down 34% so far this year (as of 27 July’s close). It goes without saying that the coronavirus outbreak is responsible for the bulk of these losses.
With construction halted during lockdown, people nervous about making big financial decisions and question marks surrounding the UK economy’s near-term outlook, shareholder confidence plummeted, along with Taylor Wimpey’s share price.
There has been a wave of optimism from Taylor Wimpey's rivals, however, with reports of increased sales brought about by the government's decision to pause stamp duty.
Will this optimism be reflected in Taylor Wimpey's half-year results? And if so, is Taylor Wimpey’s share price a bargain right now?
When is Taylor Wimpey delivering half-year results?
What could move Taylor Wimpey's share price post-earnings?
Updates from Barratt Developments [BDEV] and Persimmon [PSN] have already shown that employees are back at work and order books are filling up. Persimmon was particularly optimistic, reporting a 15% year-on-year increase in forward sales, and average sale prices had actually risen. Such optimism proved contagious, with Taylor Wimpey's share price jumping with its rivals' good fortune.
Growing order book
Despite the optimism, a trading statement in June showed the impact the outbreak has had on Taylor Wimpey. House completes in the 22 weeks to 31 May came in at 2455, down from 4052 for the same period in 2019. The homebuilder’s net sales rate in the UK stood at 0.51, down from 0.85 for the same period in 2019 and indicating a significant slowdown in business.
That said, Taylor Wimpey's order book was worth £2.7 billion as of the week ending 31 May, up from 2019's £2.5 billion. This represents 11,228 homes, up from the 10,557 seen in the equivalent period last year. Taylor Wimpey also said that the majority of its sites were now up and running again, with employees back at work.
Another factor that will be weighing on shareholders’ minds, and potentially limiting Taylor Wimpey’s share price, is cancellations. However, the housing developer reported that, in the nine weeks since the start of lockdown, there were only 306 cancellations. This represents just 5% of the order book, and is actually a decrease from the 386 cancellations Taylor Wimpey had in the same period last year.
The speed of Taylor Wimpey’s share price rebound is no mean feat considering the property market was effectively shut down between 27 March and 12 May.
“Covid has created a one-off situation: you lock up millions of people in their houses and the whole population re-evaluates what home means for them,” Richard Donnell, Zoopla’s director of research told the Financial Times.
“Covid has created a one-off situation: you lock up millions of people in their houses and the whole population re-evaluates what home means for them” - Richard Donnell, Zoopla’s director of research
Zoopla shows that coastal towns and the commuter belts around cities are in high demand — bread and butter locations for the likes of Taylor Wimpey.
According to the FT, agreed sales spiked once trade was reopened and the June period saw higher levels than the previous year. Rightmove data also shows that asking prices are at record highs, with the cut in stamp duty creating a mini-boom. The question is whether this is now priced into Taylor Wimpey's share price, or whether the company will see a post-earnings boost.
So, time to buy Taylor Wimpey?
Such positive momentum suggests that Taylor Wimpey is poised to deliver a relatively strong trading statement despite the wider turbulence. This could well see a significant boost in Taylor Wimpey’s share price.
Yet, despite homebuilders’ apparent recovery, the UK economic outlook is uncertain at best. GDP has dropped by record levels and unemployment looks set to rise — especially when the government ends its furlough scheme in October. For investors, that means weighing up the long-term pros and cons before jumping in.
Of the 18 analysts offering recommendations on the FT, 1 rates Taylor Wimpey a Buy, 8 an Outperform and 10 a Hold. An average 164p price target would see a 26% upside on Taylor Wimpey's share price through 27 July’s close.
|PE ratio (TTM)||6.49|
|Quarterly Revenue Growth (YoY)||10.4%|
Taylor Wimpey share price vitals, Yahoo Finance, 28 July 2020