So housebuilders are supposed to suffer from the effects of Brexit, are they? You’d think so if you looked at the way share prices have gone since that fateful day in June, but I’m not seeing any sign of it.
Strong demand
And neither is Taylor Wimpey (LSE: TW), if Monday’s trading update is anything to go by.
The firm told us that demand “has been strong, with good levels of customer confidence“, adding that despite uncertainty surrounding the path to Brexit, “we are encouraged to see that the housing market has remained robust and trading has remained resilient“.
The central London market has apparently slowed a little, with top-end prices softening a touch, but London as a whole “remains positive and in line with the rest of the UK“. Taylor Wimpey is fully sold for its 2016 targets, and by 6 November was already 23% towards its forward sales target for 2017.
The financial situation looks healthy too, with forecasts of approximately £360m in cash on the books by year-end. And with some medium-term debt having been paid down ahead of schedule, financing costs should be reduced next year. In fact, the company says it is “committed to the announced £450 million total dividend payment to shareholders in 2017“.
The Taylor Wimpey share price has firmed up a little as a result, gaining 2.3% to 149p at the time of writing, but that’s still a fair bit down from its pre-referendum price — since close of play on 23 June, we’re looking at a 24% fall.
Does that mean Taylor Wimpey shares are cheap now? I reckon it does, with the fall putting them on a forward P/E for the end of this year of 8.7, rising only to to 9.2 based on 2017 forecasts.
Predicted dividend yields now stand at 7.5% and 9.2% for the next two years, and with the latest update coming about as close to a guarantee as we’re likely to get, I reckon the cash is in the bag.
Another good bet
Competitor Persimmon (LSE: PSN) issued a similarly upbeat trading update on 2 November, describing business in the period immediately following the Brexit vote as “encouraging“, adding that “with the start of the autumn selling season, customer activity strengthened in line with the traditional seasonality of the market“.
Persimmon’s shares have been similarly punished, losing 20% since the day of the vote — though there has been a modest pickup today to 1,707p.
Again. I think we’re looking at bargain territory here, with similar P/E ratios to Taylor Wimpey — Persimmon shares are on multiples of around 8.9 and 9.4 for this year and next. And though dividend yields are not quiet as high, 6.5% per year is nothing to be sniffed at.
Persimmon stressed the importance of cash generation in its latest update, predicting a year-end cash balance in excess of the £570.4m reported at 31 December 2015. The company has paid big-one off special dividends in recent years, and its strategy of rewarding investors with lots of long-term cash looks pretty unshakeable now.
Even if we do have a softer decade for house prices ahead of us, there’s not suddenly going to be any glut on the market and the excess of demand is surely going to be with us for a good time yet — EU or no EU.
