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Stock Watch

Will earnings help Taylor Wimpey share price back up the ladder?

Taylor Wimpey share price - new building development with the Taylor Wimpey logo

The Taylor Wimpey share price has crumbled in the last few months, despite a housing market recovery and soaring prices. With the housebuilder preparing to announce its 2021 half-year results at 7am on 4 August, can the Taylor Wimpey share price rebuild to its former highs?

Taylor Wimpey share price slumps despite rising sales

In the trading update covering the period from 1 January 2021 to 22 April, Taylor Wimpey noted “strong customer demand” in the UK housing market, which helped it reveal a total order book value of £2.8bn, up from £2.6bn in the same period in 2020.

This represented 10,995 homes, up from 10,853 in the same period a year ago. The company said that despite pandemic lockdowns, buyer demand had been boosted by government support through the Help to Buy scheme and the stamp duty holiday. Low interest rates have also boosted buyers’ appetites.

The robust figures represented a turnaround in performance for the company, following the first national lockdown in spring 2020 that led to construction sites closing, and a slowdown in buying and selling.  

In its full-year 2020 results, Taylor Wimpey reported a 38.9% decrease in housing completions to 9,799 compared with 2019. Revenues came in at £2.79bn, down from £4.3bn and profits were £217m, down from £673.9m.

This downturn in activity could help to explain why the Taylor Wimpey share price slumped from 232.4p at the close on 16 February 2020 to 101.2p at the close on 20 September 2020.

Government support schemes, as well as people looking for homes in more rural areas or larger floorplans for remote working helped the Taylor Wimpey share price bounce back to 169.45p at the close on 8 January 2021 – the stock closed even higher still at 191.70p on 15 April.

However, the Taylor Wimpey share price surprisingly failed to build momentum from the April update, dropping to 165.85p on 2 August.

Cladding costs and end of stamp duty holiday stall turnaround

This latest drop in the Taylor Wimpey share price came despite the government announcing a new 95% mortgage guarantee scheme in April and house prices rising 8.8% year-on-year in June, according to the Halifax House Price Index.

The ending of the stamp duty holiday scheme at the end of June, concerns over unemployment following the end of furlough and cost inflation of raw materials have weighed on investor sentiment.

In addition, despite Taylor Wimpey setting aside £125m in March to fund cladding and fire safety retrofits for buildings following the Grenfell Tower disaster, the government is consulting on introducing a new developer tax to pay for further remediation work.

The Competition and Markets Authority’s investigation into how leasehold dwellings were sold by housebuilders including Taylor Wimpey is another concern.

What can we expect from the half-year results?

Continued uncertainty in the housing market is likely to feature in the company’s half-year results and could further drag down the Taylor Wimpey share price.

Investment platform AJ Bell points out that Taylor Wimpey expects to complete between 85% and 90% of 2019’s volumes this year. This would be around 14,000 dwellings, compared with 9,799 last year. In the first half of 2020, the firm completed just 2,771 homes.

Broker Liberum certainly sees “material upside in Taylor Wimpey” and holds a buy rating and target price of 195p, according to ShareCast.

“The recent sell-off offers an attractive buying opportunity,” it said. “Positive updates from the six housebuilders scheduled to report in the next month should reassure investors that trading remains strong, and the stamp duty holiday has not been the main driver of demand.”

It may be a while before the Taylor Wimpey share price returns to the heights of last February. The UK’s recovery from the coronavirus pandemic will be vital in giving buyers the confidence to get back on the housing ladder.

As much as there will be people looking for a fresh start, there will also be those badly impacted financially from the pandemic and unable to move house. There also remains some nervousness about the stability of UK house price growth.

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