Company Reports

We make no change to our GBX 190 per share fair value estimate or our financial estimates for no-moat Taylor Wimpey following its April 2024 trading update. Homebuyer demand in early 2024 has retraced in part from its cyclical lows of 2023. Still, a dramatic improvement in sales activity on Taylor Wimpey’s development sites has yet to come to fruition. Taylor Wimpey’s year-to-date weekly private sales rate of 0.69 home sales per active outlet is largely unchanged since the homebuilder’s previous update in late February. With little change in demand conditions in early spring, we continue to forecast 10,000 private home completions for Taylor Wimpey—at the top end of Taylor Wimpey’s unchanged volume guidance range of 9,500–10,000 homes—and EBIT of GBP 394 million in 2024.

Taylor Wimpey shares remain attractive despite 2024 home completion guidance, which tracks softly relative to our prior expectations. We make no change to our GBX 190 fair value estimate, which factors in the likely fruitful decade that awaits Taylor Wimpey beyond the still subdued UK housing market conditions that prevail. Having weakened some 5% following the release of its 2023 result, Taylor Wimpey shares offer attractive upside of 29% relative to our valuation.

Taylor Wimpey is the United Kingdom’s second-largest residential property developer by revenue, operating under a vertically integrated business model typical of UK homebuilders. Build quality is a key focus for Taylor Wimpey; it has been consistently awarded with a 4- or 5-star house builder rating from the UK’s Home Builders Federation over the past decade.

We remain upbeat on Taylor Wimpey’s prospects in 2024 despite the sales headwind posed by the U.K.’s appreciably slowed urban planning system. Taylor Wimpey updated the market on its performance in late 2023, indicating that homebuyer appetite is improving following tepid market conditions, particularly in mid-2023. Indeed, Taylor Wimpey’s full-year weekly 2023 private sales rate of 0.62 per active outlet implies a late 2023 improvement in sales activity and places further weight behind the notion that the U.K.’s housing market is nearing a recovery phase. Dire housing market conditions prevailed in 2023, which caused home completion volumes to fall and profit margins to contract industrywide. Taylor Wimpey shares continue to appeal, trading at a 22% discount to our unchanged GBX 190 fair value estimate.

Taylor Wimpey is the United Kingdom’s second-largest residential property developer by revenue, operating under a vertically integrated business model typical of U.K. homebuilders. Build quality is a key focus for Taylor Wimpey; it has been consistently awarded with a 4- or 5-star house builder rating from the U.K.’s Home Builders Federation over the past decade.

Taylor Wimpey’s third-quarter trading statement provided us with little surprise, with the no-moat homebuilder reconfirming its subdued home completion guidance for 2023 amid challenging housing market conditions. Nonetheless, Taylor Wimpey provided a pleasing update regarding build cost inflation, which remains on a solid downward trajectory in the third quarter. With build costs cooling a little quicker in late 2023 than we’d previously credited, we’ve nudged up our full-year operating profit forecast by 3% to GBP 466 million. Our revised forecast sits near the top end of Taylor Wimpey’s reaffirmed 2023 operating profit guidance range of GBP 440 million-GBP 470 million. Taylor Wimpey shares remain materially undervalued in our view, trading at a 38% discount to our unchanged GBX 190 fair value estimate.

Taylor Wimpey is the United Kingdom’s second-largest residential property developer by revenue, operating under a vertically integrated business model typical of U.K. homebuilders. Build quality is a key focus for Taylor Wimpey; it has been consistently awarded with a 4- or 5-star house builder rating from the U.K.’s Home Builders Federation over the past decade.

Taylor Wimpey’s performance in the first half of 2023 provided us with few surprises, with the no-moat homebuilder delivering 5,120 home completions, EBIT of GBP 236 million, and is broadly tracking our full-year expectations. Investors were nonetheless pleased by the result—sending shares 4% higher—likely reassured by Taylor Wimpey’s modestly upgraded volume guidance and a resilient year-to-date average selling price amid challenging housing market conditions. Taylor Wimpey expects to deliver full-year home completions toward the upper end 10,000–10,500 in 2023—tracking our full-year expectations and upgraded from a prior guidance range of 9,000–10,500 homes. Confirmation that build cost inflation is beginning to ease from its heightened level of early 2023 was likely of further comfort to investors. Our full-year 2023 expectations remain broadly unchanged. Still, we tweak our full-year EBIT forecast lower by 4% to GBP 451 million with land cost recoveries shaping up to be less favourable than we’d previously credited.

Taylor Wimpey is the United Kingdom’s second-largest residential property developer by revenue, operating under a vertically integrated business model typical of U.K. homebuilders. Build quality is a key focus for Taylor Wimpey; it has been consistently awarded with a 4- or 5-star house builder rating from the U.K.’s Home Builders Federation over the past decade.

The U.K. homebuilders continue to screen attractively despite a fresh look at a number of our key U.K. housing market assumptions and consequent revisions to our financial estimates for most of our U.K. homebuilder coverage. Undoubtedly, U.K. homebuilders are staring down a difficult 2023 where profit margins are coming under considerable pressure from a combination of soaring build cost inflation and the effects of a housing market, which has entered a period of cyclical decline—causing home completion volumes to sharply contract and placing pressure on house prices.

Taylor Wimpey is the United Kingdom’s second-largest residential property developer by revenue, operating under a vertically integrated business model typical of U.K. homebuilders. Build quality is a key focus for Taylor Wimpey; it has been consistently awarded with a 4- or 5-star house builder rating from the U.K.’s Home Builders Federation over the past decade.

Taylor Wimpey’s April 2023 trading update confirmed for investors that while U.K. homebuyer confidence remains shaky, it is gradually improving in 2023. Taylor Wimpey’s year-to-date weekly private sales rate of 0.66 homes per sales outlet, excluding nonrecurring bulk sales, suggests that current homebuyer interest has improved since early 2023 and represents a marked increase of 38% relative to the second half of 2022—when forward orders crashed as U.K. mortgage interest rates spiked. Our long-term expectations for the no-moat homebuilder remain unchanged as does our GBX 190 fair value estimate. We think investors are too narrowly focused on the glum housing market conditions that currently prevail. Consequently, Taylor Wimpey shares continue to screen as materially undervalued and trade at a 34% discount to our unchanged fair value estimate.

Taylor Wimpey is the United Kingdom’s second-largest residential property developer by revenue, operating under a vertically integrated business model typical of U.K. homebuilders. Build quality is a key focus for Taylor Wimpey; it has been consistently awarded with a 4- or 5-star house builder rating from the U.K.’s Home Builders Federation over the past decade.

Taylor Wimpey executed strongly in 2022, delivering 14,154 home completions, underlying EBIT of GBP 923 million, inclusive of joint venture profits, and EPS of GBP 0.20—all broadly in agreement with our expectations for the no-moat stock. Strong average selling price, or ASP, and volume growth in 2022 reflected the buoyant market conditions that prevailed in the first nine months of 2022, representing the cyclical peak of the U.K.’s housing market. Taylor Wimpey’s EBIT margin firmed by 130 basis points year on year to 20.5% as ASP growth of approximately 4% headed off searing build cost inflation during the period. We lift our fair value estimate by 5% to GBX 190, to account for our improved near-term earnings forecast and a time value of money adjustment.

Taylor Wimpey updated the market on its late 2022 performance and, in effect, pre-announced its full-year 2022 result. Home completions of 14,154, including joint ventures, broadly aligned with our full-year expectations. However, with Taylor Wimpey’s average selling price of about GBP 313,000 tracking marginally above our prior forecast, we lift our full-year 2022 EBIT forecast by 1.6% to GBP 935 million, inclusive of joint venture profits.

Taylor Wimpey is the United Kingdom’s second-largest residential property developer by revenue, operating under a vertically integrated business model typical of U.K. homebuilders. Build quality is a key focus for Taylor Wimpey; it has been consistently awarded with a 4- or 5-star house builder rating from the U.K.’s Home Builders Federation over the past decade.

No-moat Taylor Wimpey remains on track to deliver a strong 2022 result despite the recent worsening of prevailing macroeconomic conditions. Sales have slowed in the second-half year to date, aligning with the concurrent performance of homebuilder peers following the substantial increase in U.K. housing market uncertainty in recent months. Consequently, Taylor Wimpey now anticipates flat year-on-year volumes in 2022, backing away from prior guidance for low-single-digit growth. Still, Taylor Wimpey expects to deliver full-year 2022 operating profits, inclusive of joint-venture profits, in line with the market’s current consensus estimate of GBP 922 million.

We lower our fair value estimates for our U.K. homebuilder coverage in the range of 5%-6% with the U.K. government abandoning its prior plan to introduce a range of unfunded and controversial tax cuts. Consequently, the U.K. corporate tax rate is now set to increase as originally planned to 25% in April 2023, up from a current 19%. Therefore, we increase our long-term effective tax rate assumption for our U.K. homebuilder coverage by 6 percentage points to 29%, inclusive of the 4% residential property developer tax, which came into effect in April 2022. Our revised fair value estimates for no-moat Barratt Developments, no-moat Taylor Wimpey, no-moat Persimmon, and no-moat Berkeley Group are GBX 710, GBX 180, GBX 2,400, and GBX 4,700, respectively. We make no change to no-moat Bellway’s fair value estimate of GBX 3,670, having previously incorporated the increase in its effective tax rate into our financial estimates in conjunction with its fiscal 2022 full-year result on Oct. 18, 2022.

Taylor Wimpey is the United Kingdom’s second-largest residential property developer by revenue, operating under a vertically integrated business model typical of U.K. homebuilders. Build quality is a key focus for Taylor Wimpey; it has been consistently awarded with a 4- or 5-star house builder rating from the U.K.’s Home Builders Federation over the past decade.

We make no change to our fair value estimates for our U.K. homebuilder coverage despite the marked volatility in U.K. fixed-income markets brought on by the U.K. government’s recently announced package of tax cuts. Accordingly, we reiterate our per-share respective fair value estimates for no-moat Barratt Developments, no-moat Taylor Wimpey, no-moat Persimmon, no-moat Bellway, and no-moat Berkeley Group of GBX 750, GBX 190, GBX 2,530, GBX 3,750, and GBX 4,950 respectively. While shares in all U.K. homebuilders under our coverage trade at significant discounts to their unchanged valuations, Bellway remains our top pick. We think Bellway’s market share growth ambitions will deliver partial offset to earnings weakness brought on by cyclical U.K. housing market headwinds now forming.