­­Business Overview
Taylor Wimpey (TW) was formed in the year 2007, post-merger of George Wimpey and Taylor Woodrow. The company is headquartered in High Wycombe, the United Kingdom with operations department in the UK and Spain. It is the largest UK based homebuilders and has 24 offices beyond England, Scotland and Wales. The company builds various types of homes in the UK like apartments to six-bedroom homes; with a specific price range and includes private as well as affordable homes. The company has the intent to deliver the best houses for customers while the houses are the ones useful to be built. In the UK, the company has three divisions – North, Central-South West and London-South East divisions. In Spain, they develop good quality homes at various locations – Costa Blanca, Costa del Sol and the islands of Mallorca and Ibiza. Business operations also spread across supply chain logistics, known as Taylor Wimpey Logistics. In the logistics business, they provide the delivery of construction related material. The company shares are traded at the London Stock Exchange and part of the FTSE 100 benchmark index.

Key Statistics


Key Management Team
Chairman: Kevin Beeston
Chief Executive: Pete Redfern
Group Finance Director: Chris Carney

Top 10 Shareholders
1.    Woodford Investment Management Ltd.; 166.43 million and 5.08%.
2.    Legal & General Investment Management Ltd.; 98.50 million and 3.01%.
3.    Standard Life Investments Ltd.; 96.40 million and 2.94%.
4.    BlackRock Fund Advisors; 89.01 million and 2.72%.
5.    The Vanguard Group, Inc.; 88.19 million and 2.69%.
6.    Norges Bank Investment Management; 77.99 million and 2.38%.
7.    Polaris Capital Management LLC; 72.81 million and 2.22%.
8.    M&G Investment Management Ltd.; 56.67 million and 1.73%.
9.    Hargreaves Lansdown Stockbrokers Ltd.; 53.77 million and 1.64%.
10. Aberdeen Asset Investments Ltd.; 53.76 million and 1.64%.
 
Financial Highlights - FY2018 (£, million)

(Source: Annual Report, Company Website)

Financial Commentary – FY2018
On year on year basis, 2018 revenue from north division surged by 6.3% to £1,418.7m; Central and South West Division up by 4.3% to £1,347.2m; London & South East Division decreased by 2.1% to £1,210.3m, and the Spain market rose by 10.6% to £104.2m. The company’s reported revenue of £4,082 million for the year ending December 2018 as compared to £3,965.2 million in 2017 for the same period. There was an increase of 2.9 per cent in revenue of the company due to an increase in revenue from the UK and Spain geographical division. The company’s operating profit surged to £880.2 million in FY2018 as compared to £844.1 million in FY2017. There was an increase of 4.3 per cent due to the strong performance in the UK and Spain businesses. In FY18, profit before tax and exceptional items surged by 5.5 per cent to £856.8 million against £812.0 million reported last year due to the increase in operational results and lower net finance costs. Profit before tax increased by 18.9% during FY18 to £810.4 million from £682.0 million in FY17, results for FY18 shows the focus of higher operating profit and lower expectational charges. Profit for the year rose to 18.2% during FY18 to £656.6 million vs £555.3 million in FY17, due to the decrease in the post-tax exceptional charges and improvement in performance. The company’s adjusted basic earnings per share was 21.3 pence in FY2018 as compared to 20.3 pence in FY2017. Basic EPS up by 18.2 per cent to 20.1 pence in FY18 as compared to 17.0 pence in FY17. Taylor Wimpey reported tangible net asset value of 98.3 pence for FY18, up 2.7 per cent against its FY17 reported tangible NAV. Net cash result grew by 25.8 per cent to £644.1 million, up from £511.8 million a year ago, due to maintenance of a healthy balance sheet and strong performance in trading. In 2019, shareholders will receive a total dividend of £600 million. At the end of 2018, the secured order book stood at £1,782 million (+9.5% year on year).

Ratios

(Source: TR)

Ratios Commentary
EBITDA margin reported was 21.7 per cent in FY 2018, considerably higher against the industry median of 12.9%. Net margin of 16.1 per cent for FY18 stood significantly higher than the industry median of 7.3 per cent, reflecting high profitability growth as compared to industry performance. Return on equity stood at 20.6 per cent in FY 18, higher than the industry median of 17.7 per cent. On the liquidity front, Taylor Wimpey liquidity position was higher than the industry median. Both current and quick ratios increased marginally in FY 18 as compared to the last year. On the leverage front, the debt-equity ratio was lower compared with the industry median. Company's asset turnover ratio of 31.6 was higher than the industry median of 9.8, but on year-on-year basis management efficiency has reduced.
 
Share Performance

(Source: TR)
 
Commentary
On 1^st March 2019, Taylor Wimpey shares closed at GBX 179.75 remained constant against its previous day closing price. Stock’s 52 weeks High and Low is GBX 206.21/GBX 127.80. At the closing price, the share was trading 12.81 per cent lower than its 52w High and 40.69 per cent higher than its 52w low, this indicates stock has potential to move up further. Taylor Wimpey's share price rose significantly by 34.18 per cent in the last 3 months (as at March 1, 2019), and in the last one year, the stock has delivered negative 2.73 per cent returns. Stock’s average traded volume for 5 days was 16,915,136.60; 30 days - 10,392,699.27 and 90 days - 13,102,916.29. The average traded volume for 5 days was up by 62.76 per cent as compared to 30 days average traded volume. On the valuation front, the stock was trading at a trailing twelve months PE multiple of 8.5x as compared to the industry median of 8.8x. The company’s stock beta was 0.84, reflecting lower volatility as compared to the benchmark index. Total outstanding market capitalisation was around £5.90 billion and a dividend yield of 3.47 per cent.
 
Valuation Methodology – 1
EV/Sales Multiple Approach (NTM)


While valuing Taylor Wimpey PLC on EV/Sales Multiple, we have considered Next Twelve Month (NTM) EV/Sales of its peers, which were Persimmon PLC (NTM EV/Sales stood at 1.79x), Barratt Developments PLC (NTM EV/Sales stood at 1.14x), Berkeley Group Holdings PLC (NTM EV/Sales stood at 1.49x), Bellway PLC (NTM EV/Sales stood at 1.24x), Redrow PLC (NTM EV/Sales stood at 1.13x), and Bovis Homes Group PLC (NTM EV/Sales stood at 1.31x).
 
Valuation Methodology – 2
EV/EBITDA Multiple Approach (NTM) (EBITDA (FY19E approx.))


While valuing Taylor Wimpey PLC on EV/EBITDA Multiple, we have considered Next Twelve Month (NTM) EV/EBITDA of its peers, which were Persimmon PLC (NTM EV/EBITDA stood at 6.05x), Barratt Developments PLC (NTM EV/EBITDA stood at 6.47x), Berkeley Group Holdings PLC (NTM EV/EBITDA stood at 6.23x), Bellway PLC (NTM EV/EBITDA stood at 5.45x), Redrow PLC (NTM EV/EBITDA stood at 5.65x),  Bovis Homes Group PLC (NTM EV/EBITDA stood at 7.74x) and Crest Nicholson Holdings PLC (NTM EV/EBITDA stood at 6.09x).

Note: All forecasted figures and peers have been taken from Thomson Reuters.

Growth Prospects and Risks Assessments
As at February 2019, the secured order book stood at £2,170 million (2018 same period: £1,961.0 million) and represented 9,622 homes driven by new construction contracts signed. Trading will remain challenging, and the growth of Home Building competition will remain strong in all our markets. Company’s revenue FY2019 will be lower than in 2018, reflecting the impact of the regulatory changes in the UK and EU. The company’s performance could be impacted by macroeconomic environment and changes such as inflation or public spending.
 
Conclusion
While broad-based challenges can be seen ahead of the group, given the current trading levels which indicate the stock movement towards 52-week high with support coming from growth drivers like increased revenue mainly because of performance from UK & Spain division and increased cash inflow from operations. The company is impacted by Brexit but still had been able to meet expected sales expectations. Based on the strong growth prospects of the company and the valuation done using the above two methods we have given a BUY recommendation with a single-digit upside potential (based on 6.2x NTM EV/EBITDA on FY19E EBITDA and 1.4x NTM EV/Sales on FY19E sales).

Note- GBp or GBX are interchangeably used for Pence Sterling. 

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