Taylor Wimpey Plc

Taylor Wimpey PLC (TW) is a Wycombe, United Kingdom-headquartered leading residential housing developer in the United Kingdom with a small operation in Spain as well. The group operates at a regional level from 24 local offices across the country, and builds a wide range of high-quality properties, with a broad price range. The operations of the group are differentiated in four geographical segments, namely North, Central & South West, London & South East, and Spain.

Recent News
On 18^th October 2019, Taylor Wimpey announced the selection of Credit Suisse International and Citigroup Global Markets Ltd as joint corporate brokers effective immediately.

Financial Highlights – H1 Financial Year 2019 (30^th June 2019, £, million)

(Source: Interim Report, Company Website)
 
In the first half of the financial year 2019, revenue surged by 0.8 per cent to £1,732.7 million against £1,719.8 million in H1 2018 driven by an improvement in the UK average selling prices and an increase in UK volumes. As blended build cost per unit in the UK rose by 6.1 per cent to £152.5 thousand, UK gross profit per completion declined to £61.2 thousand for the period, while group’s gross profit declined by 8 per cent to £409.6 million in H1 FY2019 from £445.0 millionin H1 FY2018. Operating profit also declined by 9.4 per cent from £344.3 million in H1 2018 to £311.9 million in H1 2019, which corresponded to an operating profit margin of 18.0 per cent (H1 2018: 20.0%). Profit before exceptional items for the half-year declined by 10.1 per cent to £242.0 million (H1 2018: £269.1 million), while profit before tax and exceptional items for the period decreased by 9.4 per cent to £299.8 million (H1 2018: £331.0 million). The profit for the period was at £242 million in H1 2019 as against £244.5 million in H1 2018. The company’s basic earnings per share were 7.4 pence in H1 2019 versus 7.5 pence in H1 2018.

Share Price Performance

Daily Chart as at October-22-19, before the market closed (Source: Thomson Reuters)

On 22nd October 2019, Taylor Wimpey Plc shares were trading at GBX 168.45 at the time of writing before the market close (at 9:05 AM GMT), down by 0.41% against the previous day closing price. Stock's 52 weeks High and Low are GBX 180.51/GBX 119.72.

Conclusion
The housing market conditions remained positive despite the political uncertainties. The company was successful in offsetting the lower margins by posting record sales. The company has a decent order book for the period. The UK housing market is characterised by a stable environment, with robust demand, as indicated by a healthy net private sales rate for H1 2019 of 1.00, along with good opportunities in the land market. However, the broader construction market is expected to remain volatile until the end of Brexit process, which has led to considerable uncertainty in the wider economy and has hit consumer confidence. Moreover, the cost borne by the company can also increase if sterling depreciates, which can hit the profitability of the group.

Based on the above rationale, we have given a "HOLD" recommendation at the current price of GBX 168.45 (as on 22nd October 2019, before the market close).
 

Great Portland Estates Plc

Great Portland Estates PLC (GPOR) is a London-headquartered Real Estate Investment Trust that is focused on development and property investment in central London, with a West End focus. The portfolio of the group includes refurbished spaces, and historic buildings for retail, commercial and residential use and purpose-built new developments, with the company owning £2.6 billion of real estate in central London spread across around 47 properties in over 35 sites with a total area of around 2.6 million square feet.

Financial Highlights – Financial Year 2019 (31^st March 2019, £, million)

(Source: Annual Report, Company Website)

For the financial year ending 31^st March 2019, the company’s reported total revenue decreased to £112.4 million as against £386.9 million in the financial year 2018. Total operating profit declined from £149.7 million in FY 2018to £54.6 million in FY2019. Profit before tax reduced to £56.1 million in FY2019 from £76.7 million in FY2018. The company’s reported IFRS profit after tax decreased to £49.5 million as compared with the financial year 2018 data of £70.3 million. Basic IFRS EPS for the year stood at 17.9 pence in FY2019 as compared to 21.5 pence in FY 2018. Diluted IFRS EPS for the year 2019 was 17.1 pence as compared to 18.2 pence in FY 2018. Diluted EPRA EPS stood at 19.4 pence, a decrease of 4.9 per cent from the financial year 2018 of 20.4 pence. Cash and undrawn facilities decreased to £608 million in FY2019 as compared to £814 million in FY 2018.  The company’s board has declared a final dividend per share of 7.9 pence. The total dividend per share for the year 2019 stood at 12.2 pence, an increase of 8 per cent as compared with the financial year 2018 data of 11.3 pence.

Share Price Performance

Daily Chart as at October-22-19, before the market closed (Source: Thomson Reuters)

On 22nd October 2019, Great Portland EstatesPlc shares were trading at GBX 806.00 at the time of writing before the market close (at 10:06 AM GMT), up by 0.80% against the previous day closing price. Stock's 52 weeks High and Low are GBX 808.40/GBX 643.80.

Valuation Methodology

*Peers: Derwent London Plc, Shaftesbury Plc and SEGRO Plc.

Conclusion
Weakening macroeconomic environment for property investment has resulted from the combination of ongoing political uncertainty and weaker economic growth around the world. Being a global hub, the long-term prospects of London market still seem to be bright, but the current political impasse has reduced transaction activity in recent months, especially in the investment market. Because of this, commercial real estate market in London has trended broadly flat over the last 12 months, and the prospects for businesses across London could be adversely impacted by the potential changes in the UK political landscape.

The company’s P/E, P/CF and EV/EBITDA multiples are significantly higher as compared to the industry multiple, reflecting overstretched valuations.

Based on the above factors and supported by valuation, we recommend investors to “Avoid” taking fresh positions at the current price of GBX 806.00 (as on 22^nd October 2019), based on 39x NTM Price/Earnings multiple on FY20E earnings per share (approx.).
 
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.

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