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.

Investment Rationale for Valuation – Buy at GBX 127.60

• Reaffirmed Guidance: On 25 May 2022, Taylor Wimpey reiterated the FY22 guidance of operating profit margin and return on net operating assets to 21-22% and 30%, respectively. It seems that the Company is benefitted from strong UK housing market despite cost-of-living pressure.
• Encouraging Current Trading: The Company had replicated a positive business momentum of FY21 into FY22 with a total order book value standing at approximately £2,972 million as of 17 April 2022.
• Share Buyback Programme: On 26 April 2022, Taylor Wimpey instructed Credit Suisse International to buy back up to £75,000,000 of the Company's shares of its £150,000,000 share buyback programme announced on 3 March 2022. It would reduce the share capital and will enhance earnings per share.
• Undervalued Multiples: On a forward 12-month basis – key valuation multiples (EV/Sales, EV/EBITDA, Price/Earnings, and Price/Book) are undervalued against the average of the Housebuilding sector.
• Technical Indicator: From a technical standpoint, the MACD line has given a bullish crossover against the signal line, reflecting a positive price potential.

Key Risks

• House Price Slowdown: Soaring inflation rates and the rising cost of debt can gradually impact the inflated house prices.
• Macroeconomic Uncertainties: The prolonged Covid-19 curbs in China has induced supply chain issues. Moreover, monetary policy tightening, persistent inflation, and subdued economic forecasts can continue to impact corporate profits and put pressure on equity markets.

 

Trading Update (for the period covering from 1 January 2022 to 26 April 2022, as of 26 April 2022)

• Net Private Sales Rate: The Company’s net private sales rate for the year to 17 April 2022 remained strong at 0.96, while it was 1.00 for an equivalent period of the prior year.
• Guidance: TW. remained committed to achieving an operating profit margin target of 21-22% during FY22.

One Year Share Price Chart

 (Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22E)

*Peers: Countryside Partnerships PLC, MJ Gleeson PLC, and Springfield Properties PLC.

*All selected peers are LSE-listed Companies from the Housebuilding sector.

Conclusion

During FY21, revenue, operating profit, and basic earnings per share increased by 53.6%, 175.9%, and 142.9% YoY, respectively. The Company had strengthened its landbank from 82,000 plots at the end of March 2021 to 87,000 plots at the end of March 2022.

In a nutshell, TW is an FTSE 100 listed Company with solid fundamentals, the stock price is trading close to the 52-weeks low, providing an attractive opportunity for investors to take a position.

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 robust current trading, overall average selling price, quality landbank, 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 127.60 (as of 26 May 2022, at 9:05 AM GMT+1) with lower double-digit upside potential based on 7.79x 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.

Note 5: ‘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.’ 

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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