Taylor Wimpey Plc

Taylor Wimpey Plc (TW), which was formed post the merger of George Wimpey and Taylor Woodrow and is known for building various types of homes in the UK, seems to be on investors' radar lately given the overall economic and house price scenario. The company seems to offer an attractive investment theme through its stock which looks to be still trading in undervalued space with good dividend yield.

Recent News
On February 27, 2019, the Company reported its full-year financial results for the period ended on December-31-2018; group completions were 15,275 units during FY18, and revenue surged by 2.9% to £4,082.0 million.

Financial Results and Review – Financial Year 2018 (£, million)

(Source: Annual Report, Company Website)
 
Group’s reported revenue was £4,082 million for the year ending December 2018 and increased by 2.9% as compared to £3,965.2 million in FY17. Revenue shot up on account of an increase in revenue from the UK and Spain geographical division. On year on year basis in 2018, revenue from north division surged by 6.3% to £1,418.7mn; Central and South West Division were up by 4.3% to £1,347.2mn; London & South East Division decreased by 2.1% to £1,210.3m, and the Spain market rose by 10.6% to £104.2m. 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 the performance. The company's adjusted basic earnings per share were 21.3 pence in FY2018 as compared to 20.2 pence in FY2017. Basic EPS grew by 18.2 per cent to 20.1 pence in FY18 as compared to 17.0 pence in FY17. At the end of 2018, the secured order book stood at £1,782 million (up by 9.5% year on year). The company paid dividends worth £499.5 million in FY18 as compared with £450.5 million in FY17

Share Price Performance

Daily Chart as at April-04-19, before the market close(Source: Thomson Reuters)
 
On 4th April 2019, at the time of writing (before the market close, GMT 9:32 AM), Taylor Wimpey Plc shares were trading at GBX 184.90, down by 1.15 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 206.21/GBX 127.80. The outstanding market capitalisation was around £6.12 billion with a dividend yield of 3.34 per cent.
 
Valuation Methodology


Conclusion
While broad-based challenges can be seen ahead of the group, the current trading levels 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 method we have given a BUY recommendation at the closing price of GBX 187.05 (as on April 3, 2019) with a single-digit upside potential based on 10x NTM Industry Median Price-to-Earnings (approx.) on FY19E EPS.

 

Persimmon Plc

Persimmon PLC (PSN) is a British leading housebuilder and designs, develops and builds residential houses, ranging from studio apartments to executive-style family homes. The company has 31 regional offices in the UK, and it trades under brands such as Charles Church, Persimmon Homes and Westbury Partnerships across England, Wales and Scotland.

Financial Results and Review – Financial Year 2018 (£, million)

(Source: Annual Report, Company Website)
 
Total group revenue for the year increased by 3.89 per cent to £3.74 billion, driven by an increase in legal completions which grew by 406 new homes in 2018 to 16,449. Group’s gross profit stood at £1,179.9 million in FY 2018 as compared to £1,071.7 million in FY 2017. Group’s operating profit surged to £1.083 billion, an increase of 13%, while underlying new housing operating margin increased to 30.8%, reflecting a 260bps increase. Group’s reported PBT increased by 13% in FY 2018 to £1.091 billion from £0.966 billion in FY 2017. Total Net Income for the year for FY 2018 stood at £902.8 million as compared to £805.3 million in FY 2017. The company’s basic EPS increased by 11% to 283.3 pence in FY 2018 from 255.0 pence in FY 2017. The company’s Diluted EPS stood at 280.8 pence in FY 2018 from 243.1 pence in FY 2017.

Share Price Performance

Daily Chart as at April-04-19, before the market close(Source: Thomson Reuters)
 
On 4th April 2019, at the time of writing (before the market close, GMT 10:14 AM), Persimmon PLCshares were trading at GBX 2,246, up by 0.22 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 2,913.00/GBX 1,824.70. The outstanding market capitalisation was around £7.12 billion and a dividend yield of 10.49 per cent.
 
Valuation Methodology


The “Help to Buy” scheme, which is stated to be in place till 2023, has helped the company in posting strong results, while company’s focus on low to the mid housing market and in North England helps it to cushion the blow from Brexit-related effects on the property market. Despite current trading levels which indicate the stock on the lower side, but the company has shown steady growth in its financials. Based on strong financials which are supported by valuation done using the above method, we have given a BUY recommendation at the closing price of GBX 2,241 (as on 3^rd April 2019) with single-digit upside potential based 9x NTM Price/Cash Flow (approx.) on FY19E Cash Flow per share.
 

Barratt Developments Plc

Barratt Developments Plc (BDEV) is a UK based holding company engaged in the business of acquiring land, planning, designing, developing, constructing and selling the residential property and commercial property as well. The group's business operations are Housebuilding and Commercial developments. Around 99 per cent of the group's total revenue comes from housebuilding segment. Major brands of the company are David Wilson Homes, Barratt Homes and Barratt London. 

Financial Results and Review – H1 Financial Year 2019 (£, million)

(Source: Semi-annual Report, Company Website)
 
The group’s total completions for the period increased by 4.1 per cent in the first half of FY 2019 to 7,622 homes, against 7,324 homes in H1 FY18, which was in line with the group’s expectations. The completions were helped by the company’s newly Cambridgeshire division which is fully operational and will assist in growth over the medium term. The revenue increased by 7.2 per cent in H1 FY19 to £2,132 million, up from £1,988 million in the H1 of FY18. The Gross margin improved by 200 basis points to 22.6% in H1 FY19 as compared with 20.6% in H1 FY18. The profit from operations rose by 15.3 per cent to £409.7 million in the H1 of FY2019, against £355.2 million in the corresponding period of FY 2018, while profit before tax increased to £408 million in H1 FY19 from £342.7 million in H1 FY18. The operating margin also rose by 130 bps to 19.2 per cent, reflecting higher gross margins of new land purchased and the benefits of the new product range. The basic earnings per share rose by 20.7 per cent to 32.7 pence. The return on capital employed grew from 28.3 per cent to 29.5 per cent in H1 FY19.

Share Price Performance

Daily Chart as at April-04-19, before the market close(Source: Thomson Reuters)
 
On 4th April 2019, at the time of writing (before the market close, GMT 11:32 AM), Barratt Developments Plcshares were trading at GBX 617.20, down by 0.74 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 625.60/GBX 430.00. The outstanding market capitalisation was around £6.29 billion and a dividend yield of 4.42 per cent.
 
Conclusion 
Full-year outlook for Barratt Plc is bullish, with strong net cash position, increased by 133.7% in H1 FY19 to £387.7 million from £165.9 million in H1 FY18. The company has also announced a special return of £175 million in November 2019 and £175 million in November 2020 as well, which reflects the strong financial position of the company. The company is in a strong position to face the economic and political uncertainty created by the Brexit. Based on the strong growth prospects and stock is trading close to 52-week high, we have given a “Hold” on it at the closing price of GBX 621.8 (as on April 3, 2019).
 
*All forecasted figures and peers have been taken from Thomson Reuters
*The buy recommendation is also valid for the current price as covered in the report (as on April-04-19).
 

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