FTSE 100-listed housebuilder Taylor Wimpey (LSE: LON:TW) released a trading statement on Thursday which showed that its operating conditions have remained robust. The company has made an encouraging start to the 2019 financial year, with demand for new homes continuing to be high.
Although there are concerns about rising costs, the company’s financial position, growth potential within a buoyant wider housing market and its income potential could mean that its share price makes further gains after a strong performance since the start of the year.
Strong performance Average private sales since the start of 2019 have remained strong at 1.03 per outlet per week. This is ahead of the company’s expectations, and is also higher than the 0.85 figure that was recorded in the same period of the previous year. Sales pricing has remained flat when compared to the end of 2018, while cancellation rates are still at 13%.
Taylor Wimpey’s order book stands at £2,399m, which is up on the £2,155m recorded at the same time in 2018. It has also been active in the land market, where it sees significant opportunities to acquire land at favourable prices. Its long-term landbank currently stands at 128k potential plots, with its short-term landbank being 79k plots.
Financial outlook One disappointment in the company’s update was higher than expected cost inflation. Higher material costs mean that build cost inflation for 2019 is expected to be around 5%. This has been driven by a combination of underlying cumulative inflation and exchange rates impact on the cost base of suppliers. This could lead to narrower margins for the full year than were previously anticipated.
Despite this, Taylor Wimpey remains on track to meet its guidance for the full year. It expects volumes to be slightly up on the previous year, which is due to lead to a rise in net profit of 4% in 2019.
Income opportunity As expected, the company plans to pay a special dividend of 10.7p per share for the 2018 financial year. When combined with its ordinary dividend for 2018 of 4.74p per share, this means that the stock has an historic yield of around 8.5%. With Taylor Wimpey having a net cash position of £500m and being expected to retain its special dividend in the current year, it could offer a highly enticing income investing outlook.
As well as a high yield, the stock also has a low valuation. It trades on a price-to-earnings (P/E) ratio of around 8.2. This suggests that despite its share price rise of 34% since the start of 2019, it could still offer a wide margin of safety. Since its trading conditions appear to be robust at a time when demand for new homes is high, it could offer continued share price growth. When its dividend is factored in, Taylor Wimpey’s total return prospects could be highly encouraging.
Peter Stephens owns shares of Taylor Wimpey. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019