Taylor Wimpey Plc – Operating with Strong Balance Sheet and Decent Order Book

Taylor Wimpey PLC (LON: TW) is a FTSE 100-listed residential property developer Company. The Company operates from 24 regional offices.

On 11 November 2020, the Company will release the trading update.

Financial Highlights (for the period ended 28 June 2020, as on 29 July 2020)


(Source: Company Website)

For the first half of 2020, the Group’s revenue was down by 56% to £754.6 million (H1 FY19: £1,732.7 million), due to the unprecedented impact of COVID-19 on the Group. UK volumes reduced by 57.8% (excluding JVs) to 2,713 completions (H1 FY19: 6,432) with an increase of 3.1% in UK average selling prices. In the UK, the average selling prices on private completions surged by 2% as compared with the corresponding period of the last year, driven by larger average plot sizes, and an increased proportion of completions from the Southern businesses (versus 2019). Led by the decrease in volumes and additional costs in relation to COVID-19, the operating loss reported at £16.1 million (H1 FY19: profit of £311.9 million profit). However, the tangible net asset value per share increased by 0.6% to 102.8 pence against the same period last year (H1 FY19: 102.2 pence). The Company ended the period with £497.3 million of net cash, having raised approximately £510 million in net proceeds through an equity raise in June 2020 for investment in land opportunities over the next twelve months. In the first half of 2020, the Group achieved an annual return on net operating assets of 16.8% ((H1 FY19: 29.4%). The Board has decided to cancel the 2020 final dividend.

Share Price Performance


1-Year Chart as on 30 July 2020, before the market close (Source: Refinitiv, Thomson Reuters)
 

Taylor Wimpey Plc’s shares were trading at GBX 119.30 on 30 July 2020 (before the market close at 10:20 AM GMT+1), which was down by 2.37% against the last day closing price. Stock 52 week High and Low were GBX 237.70 and GBX 101.00, respectively.

From the technical standpoint, 90-day RSI is currently close to an oversold zone, which means there is a good potential for a short term rebound in the stock price.

Key Risks

The Company’s supply chain will be impacted by the uncertainty created due to ongoing Brexit or COVID-19 situation. The Group’s business is exposed to economic and market fluctuations, which may adversely affect the Group’s business and financial performance.

Valuation Methodology



Conclusion

During the nine weeks since the sales centres reopened in England, the sales rate surged to 0.70 from 0.30 (during shutdown). There has been a 50% increase in website visits and a 206% increase in appointments booked, year-on-year. Despite the uncertainty, the Group witnessed the positive lending signals from the banks. Excluding joint ventures, the total order book value increased to £3,022 million as at 26 July 2020, representing 12,014 homes. The 2020 completions will be materially wedged by the closure of sites in March 2020. At the end of 2020, the Group expects net cash position in the range of £550-£750 million (dependent on the timing of land purchases). Overall, the Group has shown a strong forward indicator and order book, with a robust financial metrics.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance at the current market price of GBX 119.30 (as on 30 July 2020, before the market close at 10:20 AM GMT+1) and will recommend fresh buying at the right time.

Hargreaves Services Plc

Hargreaves Services Plc (LON: HSP) is an AIM-listed diversified Group, which deliver the services to the industrial and property sectors.

On 28 October 2020, the Company will hold the Annual General Meeting.

Financial Highlights (for the year ended 31 May 2020, as on 29 July 2020)


(Source: Company Website)

In the financial year 2020, the revenue from continuing operations decreased to £222.2 million (2019: £302.6m), due to the full mobilisation of the HS2 project has been delayed. The revenue was in line with expectations. Led by the land sales being delayed into FY21 by Covid-19, the underlying profit before tax from continuing operations for FY20 reduced by £1.5 million to £4.9 million (2019: £6.4 million). Basic underlying earnings per share from continuing operations stood at 19.9 pence in 2020 (2019: 15.3 pence) and 13.4 pence (2019: loss of 25.7 pence) on a reported basis. The Group has proposed an unchanged final dividend per share of 4.5 pence (2019: 4.5 pence). The net debt stood at £28.1 million (2019: £24.5 million including IFRS 16 adjustments). The net asset per share increased to 403 pence in the financial year 2020 (2019: 397 pence).

Share Price Performance


1-Year Chart as at July-30-2020, before the market close (Source: Refinitiv, Thomson Reuters)
 

Hargreaves Services Plc’s shares were trading at GBX 215.00 on 30 July 2020 (before the market close at 10:25 AM GMT+1), down by 4.02% against the last day closing price. Stock 52 week High and Low were GBX 323.40 and GBX 190.00, respectively.

From the technical standpoint, the shares were trading slightly below the support level of 200-day simple moving average prices, which reflects a downward trend in the stock.

Key Risks

Due to the impact of Covid-19, the Company is primarily concerned about the downturn in the market, which could put financial stress on the business in the medium to long term.The Group needs to keep a close watch to protect any breach related to the regulatory requirement. Failure in cybersecurity and a critical data breach could affect the operations of the Company as well as the reputation of the Group.

Valuation Methodology



Conclusion
The Group reported a massive decrease in revenue over the financial year 2020, due to COVID-19 pandemic, but it says markets are recovering well. While Covid-19 has caused some delay to transaction completions within the Hargreaves Land business. The economic environment in which the Company operates is full of challenges, while the recent developments have opened new opportunities. Due to covid-19 outbreak, the Company’s activities were impacted and resulted in delays to clinical readouts. The Group operates in a challenging environment which requires continuous investment, sometimes at the cost of profitability, to stay ahead of competitors. Moreover, the Company’s Price/Cash Flow multiples is in negative zone as compared to the industry multiples.

Keeping in mind the risks faced by the Company, investors are recommended to keep a “WATCH” on the stock at the current market price of GBX 215.00 (as on 30 July 2020, before the market close at 10:25 AM GMT+1), while we look for any upcoming catalysts.
 
*Dividend Yield may vary as per the stock price movement.
*All forecasted figures and Industry/Peer information have been taken from Refinitiv, Thomson Reuters.

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