Taylor Wimpey PLC

Taylor Wimpey PLC is an FTSE 100 listed residential property developer who builds a wide range of properties in different price ranges. It produces both private and affordable homes.

TW. had paid an interim dividend of 4.14 pence per share on 12 November 2021, while the ex-dividend date was 07 October 2021.

The Company will release its full-year FY21 results on 03 March 2022.

Investment Rationale for Valuation – Buy at GBX 141.00

• Strong Industry Dynamics: According to the recently available data from the Office for National Statistics, UK average house prices increased by 10.8% over the year to December 2021, an increase from 10.7% in November 2021.
• Appointment of New CEO: The appointment of Jennie Daly as the CEO effective 26 April 2022 will bring new perspectives to the business.
• Solid Fundamentals: The Company had shown significant improvement in the net cash position, UK home completions, overall average selling price and short term landbook during FY21 when compared with the prior year levels.
• Undervalued Multiples: In terms of forwarding 12-month – EV/Sales EV/EBITDA, Price/Earnings, and Price/Book valuation multiples are undervalued against the median of the Consumer Cyclicals industry.
• Technical Indicator: From a technical standpoint, 14-day RSI (~29.23) is close to the oversold territory, while the stock price is hovering around the lower Bollinger band. Thus, the stock price has the potential to show an upside momentum in the near term.

Key Risks

• Record UK Inflation: According to the Bank of England, consumer price inflation touched an almost 30-year high of 5.4% in December 2021 and is expected to peak at over 6% in April 2022.
• Subdued Macroeconomic Conditions: The dented risk appetite of investors amid record inflation rate in the UK, Ukraine war crisis, expectations for further interest rates hikes, and uncertain demand outlook.

Recent Developments

• Voting Rights and Capital: On 1 February 2022, the Company announced that it issued share capital consisting of 3,648,793,991 ordinary shares of 1 penny each.
• Changes in Board Committee: On 31 January 2022, the Company stated that Angela Knight and Gwyn Burr would be retiring from the Board of Directors on 26 April 2022.

Trading Update (for the year ended 31 December 2021, as on 17 January 2022)

• Total UK Home Completions: The Company had shown a healthy 47% year on year growth in the UK home completions to 14,087, comprising 2,501 affordable homes, equivalent to 18% of total completions.
• 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

One Year Share Price Chart

 (Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22E)

Conclusion

Despite an FTSE 100 listed Company with solid fundamentals, the stock price is trading almost very close to the 52-weeks low, providing an attractive opportunity for investors to take a position. 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. The stock made a 52-week low and high of GBX 140.90 and GBX 193.80, respectively.

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.

Based on the strategic progress, solid fundamentals, acceleration in investment programme, and support from the valuation as done using the above method, we have given a “Buy” recommendation on Taylor Wimpey PLC at the current market price of GBX 141.00 (as on 25 February 2022 at 08:16 AM GMT) with lower double-digit upside potential based on 8.74x 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 decision should be made depending on the investors’ appetite on 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 subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which 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.

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 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 unfavorable movement in the stock prices.

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