Taylor Wimpey PLC (LON: TW.) – Expects full-year operating profit of £820 million for FY21 

Taylor Wimpey PLC is an FTSE 100 listed residential property developer, which builds a wide range of properties in different price ranges. It produces both private and affordable homes. The Company operates from 24 regional offices across the United Kingdom, with further operations in Spain. It builds around 15,000 high-quality new homes in a year across the UK. The operations of the Group are differentiated into four segments, namely London & Southeast, Central & Southwest, and Spain.

On 11 November 2021, the Company will release a trading update.

Recent trend of dividend payments

TD. had distributed regular dividend payments for the last five years. Moreover, it will pay an interim dividend of 4.14 pence per share on 12 November 2021 with an ex-dividend date of 07 October 2021. It remained in line with the progressive dividend policy of distributing 7.5% of net assets to shareholders annually in two equal payments.

Growth Prospects

• Record UK House Price Growth during September 2021: According to the mortgage lender Halifax, the UK house price witnessed a record monthly growth of around 1.70% during September 2021, ahead of the end of a tax break for house-buyers. Meanwhile, it had witnessed a maximum monthly growth since 2007.

• Robust Completions during H1 FY21: TW posted a record first half performance with Group completions of 7,303 homes during H1 FY21. In comparison, TW had completed around 2,771 homes for the comparative period of the prior year.
• Impressive Volume Growth Projections: The Company would carry positive momentum for the medium term and remained well-equipped to witness a solid volume growth from 2023. Moreover, the Company had managed to approve record of 32,000 plots over the last 12 months with an operating margin target of between 21-22% and an ROCE of over 30%.

Key Risks

• End of Stamp Duty Holiday: The end of the stamp duty holiday on 30 September 2021 may dent the top-line business of TW.
• Supply Chain Disruption: The recent shortage of lorry drivers in the UK had created supply chain disruptions and escalated the freight cost.
• Wrong Strategic Choices: The failure of partner relationships could adversely impact the business in the near term.
• Rise in Interest Rates: The recent hawkish comments made by several central governments regarding a hike in the interest rates could make fundraising difficult for the Company.

Now, we will analyse the Key Fundamental Statistics & Shareholding Pattern of Taylor Wimpey PLC.  

Capital Research Global Investors is the most significant shareholder as it holds nearly 185.07 million shares as of 30 September 2021. 

H1 FY21 Financial & Operational Highlights (for six months ended 04 July 2021, as of 04 August 2021)

(Source: Company result)

• Robust Increase in Revenue: Driven by the tough prior-year comparatives, TW. managed to drive revenue higher by around 191.1% from £754.6 million during H1 FY20 to £2,196.3 million for H1 FY21.
• Favourable Turnaround in Profitability: On the profitability front, the Company had demonstrated a favourable turnaround and reported a profit before tax of £287.50 million during H1 FY21, while it had reported a loss before tax of negative £39.80 million for H1 FY20.
• Strong Cash Improvement: With regards to the balance sheet, the timely land payments had improved the net cash position from £497.30 million at the end of H1 FY20 to £906.50 million as of 04 July 2021.
• Decent Order Book: TW had a total order book representing 10,344 homes with a value of £2,608 million as of 4 July 2021.
  

Financial Ratios (H1 FY21)

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 18 October 2021, at 08:03 AM GMT+1, TW.’s shares were trading at GBX 155.80, down by around 0.89% from the previous day closing price. Stock 52-week High and Low were 193.80 and GBX 102.43, respectively.

From a technical perspective, the stock price is hovering between the lower Bollinger band and the middle Bollinger band, indicating an upside potential in the stock price.

Over the last one year, TW.’s stock price has delivered a positive return of ~33.48%, and it has outperformed the FTSE All-Share Household Goods & Home Construction index (benchmark sector) with a return of about 0.18% and FTSE 100 index (benchmark index) with a return of approximately 22.74%.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook

The Company had reported outstanding H1 FY21 results with robust top-line revenue growth and switched back into profitability. Moreover, the healthy levels of house price growth had completely offset the increased build cost and supply chain pressure during the first half 0f 2021. TW had anticipated a net cash balance of around £700 million at the end of 2021, subject to the timing of certain land transactions. Nonetheless, the Company had expected full-year Group operating profit to remain £820 million for FY21. In addition, the Company expects completion to be ranging from 13,200 to 14,000 homes. In a nutshell, the consumer sentiments for the UK housing market would get boosted by low-interest rates, good mortgage availability and Government support for customers.

Considering the solid industry dynamics, outstanding top-line business growth, improved cash position, robust guidance for FY21, and support from the valuation as done using the above method, we have given a “BUY” recommendation on Taylor Wimpey PLC at the current price of GBX 155.80 (as on 18 October 2021 at 08:03 AM GMT+1), with lower-double digit upside potential based on 10.39x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.). 

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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