Taylor Wimpey Earnings: Nervous Housing Market Sets Up Challenging 2023, but Shares Still Attractive

Taylor Wimpey TW. 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.

Nonetheless, we were surprised by Taylor Wimpey’s soft full-year 2023 volume guidance which is more downbeat than our already somber expectations for the year ahead. Taylor Wimpey’s sales rate remains at a depressed level in early 2023, despite having improved from its nadir in late 2022 in face of surging mortgage interest rates, and the company is not confident of improvement over the course of 2023.

Indeed, the stage is set for a tough 2023 for the U.K. homebuilders including Taylor Wimpey. We’ve lowered our full-year 2023 volume assumption by 15% to 10,500 U.K. home completions, which sits at the top end of Taylor Wimpey’s guided range of 9,000 to 10,500 completions. Moreover, profit margins are set to compress as a rapidly slowing housing market places downward pressure on house prices, and build cost inflation continues to soar in early 2023. However, with the ASP of homes in Taylor Wimpey’s forward order book tracking ahead of our prior expectations, we increase our full-year 2023 EBIT and EPS forecasts by 11% to GBP 362 million and GBX 6.9 pence, respectively, although these figures are substantially depressed from 2022.