Taylor Wimpey PLC (LON: TW.)

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 26 April 2022, the Company has scheduled to release its Trading Update.

Recent trend of dividend payments

The Company has an impressive dividend policy to pay out to shareholders approximately 7.5% of net assets, paid in two equal instalments in May and November. Moreover, it will pay a final dividend of 4.44 pence per share on 13 May 2022 with an ex-dividend date of 31 March 2022. In comparison, the Company had paid a final dividend of 4.14 pence per share for FY20.

 Growth Prospects

• Robust Land Activities: has taken a strategic decision to increase investment in land on an opportunistic basis during the early stages of the pandemic. The Company had strengthened its landbank by adding 29,000 new plots to the short term landbank over the 18 months to 31 December 2021.
• Share Buyback Programme: The Company had announced its intention to return excess cash of £150 million in 2022 through the implementation of a share buyback programme. Meanwhile, the initial tranche of £75 million is expected to be completed by 3 June 2022.
• Appointment of New CEO: The appointment of Jennie Daly as the CEO effective 26 April 2022 will bring new perspectives to the business.

Key Risks 

• Wrong Strategic Choices: The failure of partner relationships could adversely impact the business in the near term.
• Disruption in the Supply Chain: The failure of a key supplier to meet its contractual obligations could potentially result in some short to medium-term price increases and other short-term delays and disruptions to the Group’s projects and operations.
• Record UK Inflation: British inflation hit a 30-year high of around 6.2% during February 2022, which may cause a further interest rate hike.
• Ukraine Tension: The mounting concern over the Russian invasion in Ukraine can continue to weigh on the equity market.

Key Fundamental and Shareholders Statistics of Taylor Wimpey PLC.

BlackRock Investment Management (UK) Ltd is the most significant shareholder as it holds nearly 182.50 million shares as of 31 December 2021.    

Financial Highlights (for the year ended 31 December 2021, as of 3 March 2022)

(Source: Company Website)

• Financial Growth: During FY21, revenue, operating profit, and basic earnings per share soared 53.6%, 175.9%, and 142.9%, respectively.
• Strong Liquidity: The Group ended FY21 with strong net cash of £837.0 million (FY20: £719.4 million).
• Improved Average Selling Price: The average selling price on private completions grew by 3% YoY to £332k in FY21 versus £323k in FY20, with the overall average selling price rising to £300k in FY21.

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 28 March 2022 at 08:18 AM GMT+1, TW.’s shares were trading at GBX 134.00, up by around 1.25% against the previous day closing price. Stock’s 52-week High and Low were GBX 193.80 and GBX 125.52, respectively.

On a daily chart, the stock price is sustained between the lower Bollinger band and the middle Bollinger band. Hence, there could be an uptick in the stock price in the near term. Also, the 14-days RSI stood at ~41.78.

Valuation Methodology: Price/Earnings Approach (FY22E) (Illustrative) 

Business Outlook

TW. had ended FY21 on a good note as it had shown significant improvement in the net cash position, UK home completions, overall average selling price and short-term land-book during FY21 when compared with the prior-year levels. Moreover, the healthy levels of house price growth had completely offset the increased build cost and supply chain pressure during FY21. In terms of guidance, the Company had anticipated a low-single-digit year on year completions growth in 2022 and targeted around 21-22% operating margin. Meanwhile, the net cash is anticipated to be around £600 million, subject to the timely land payments. In a nutshell, TW. remained committed to delivering high-quality, profitable, and sustainable growth and generate consistent returns for the shareholders.

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the robust order book, strong FY21 financial performance, consistent dividend payments, 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 134.00 (as of 28 March 2022 at 08:18 AM GMT+1), with lower-double digit upside potential based on 8.57x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 4:  Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Note 5: Dividend Yield may vary as per the stock price movement.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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