The Taylor Wimpey (LSE: TW) share price rose in early trading Tuesday (23 April) as the company implied that the housing market was slowly finding its feet.
Is this the ‘buy’ signal investors have been waiting for? Quite possibly.
Green shoots
Considering how tough it’s been for holders in recent years, I suspect many will be buoyed by today’s news, released to coincide with the firm’s annual general meeting. While a full-blown recovery may still be some way off, the tone of the update felt more upbeat.
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Reflecting on a “good start” to the year, the company said recent trading had been in line with expectations and that it had seen “continued market stability” thanks to a more competitive mortgage market and confidence from buyers.
The headline numbers back this up. The net private sales rate for the year to 21 April (excluding bulk sales) was 0.69 per outlet per week. That’s a small increase on the previous financial year (0.66). The cancellation rate also fell, from 15% to 13%.
Reassuring news
As good as all this is, it’s the outlook investors are arguably most interested in. On this front, the news was reassuring rather than spectacular with the company continuing to expect between 9,500 and 10,000 completions in 2024 with a slight weighting to the second half of the year. Profit margin in the first half is likely to be reduced due to lower pricing and build cost inflation. Again, this was already expected.
Looking further ahead, CEO Jennie Daly said the company’s positioning itself for growth from next year, “assuming supportive market conditions“. Considering a lot can happen between now and then, I think that’s about as good as we can get.
So are the shares a bargain?
Before this morning’s announcement, Taylor Wimpey shares traded at a forecast price-to-earnings (P/E) ratio of nearly 16. That’s fairly average relative to the other housebuilders. However, it’s actually pretty expensive compared to the UK market as a whole. Seen purely from this perspective, this is far from a screaming buy.
However, it’s important to recognise that earnings projections can quickly change. A greater-than-anticipated first interest rate cut may cause analysts to frantically revisit their calculations. Of course, there’s always the risk that rate cuts come later than even the most pessimistic of predictions. In such a scenario, the share price could fall back.
Still, the dividend stream does look enticing. A possible 9.25p per share total return for FY24 gives a yield of almost 7%. This makes Taylor Wimpey one of the highest paying companies in the entire FTSE 100. The only snag is that profit’s barely expected to cover this payout. So a cut definitely can’t be ruled out.
I’m crossing my fingers
All told, I remain bullish on Taylor Wimpey shares and, indeed, the vast majority of companies operating in this sector. The ongoing demand for quality housing isn’t going away and this top-tier titan — backed with a solid landbank, order book and balance sheet — will surely play a major role in meeting it.
Since I already hold stock in peer Persimmon, I won’t be investing today. Instead, I’ll simply be crossing my fingers that the latter’s next update is similarly encouraging when it lands later this week.
