Stock in question: LSE:TW. (Taylor Wimpey PLC)
Taylor Wimpey PLC is one of the largest UK based homebuilders. Listed on the London Stock Exchange with a market cap totalling £5.8B, Taylor Wimpey (TW) is a constituent of the FTSE100 index. TW is the result of a merger between Taylor Woodrow and George Wimpey in 2007, both of which have rich histories in the homebuilding and construction sectors dating back more than 100 years not only in the UK but America, Canada and Ghana. In 2011, Taylor Wimpey’s American and Canadian sectors were sold off to a property investment group backed by Oaktree Capital, Texas Pacific Group and John Hancock investments for £595M in the interest to cut debt and focus investment in the UK market. Taylor Wimpey’s construction sector was also sold to Vinci PLC in 2008 which left the company’s focus on the homebuilding sector consisting of three business lines; Taylor Wimpey Homes, Taylor Wimpey Central London and Taylor Wimpey España. Let’s have a deeper look.
In the last year, investors have been fickle towards the UK housing industry with Brexit negotiations looming over many sectors in the UK stock market. This has led to a steady decline in TW’s stock value, finding a floor at 128p towards the end of 2018. After a month of consolidation around this level and shortly after TW released their annual results there was a strong recovery in the price. The daily chart above displays an interesting situation with a couple of points for us to look at from a technical trader’s point of view. Firstly, since the start of the year, we have seen a strong uptrend with price retracing at 165p and 173p before moving higher towards 190p. In recent weeks, we have seen another pullback back to 173p, towards the 200 EMA. If we see a rebound confirmed, my outlook would be that price makes it’s way back to the previous highs, just above the 200p level.
The intrinsic value illustrated above based on future cash flow shows a current discount of 27% with the expected value of 244p. This discount is not considered extremely high with it being less than a 50% discount. At this current value of 175.00p, the P/E ratio is 8.32, in the homebuilding sector, this value is not considered out of the norm with values ranging from 7.27 for Persimmon PLC and 10.26 for Bovis Homes Group PLC.
From a fundamental standpoint, Taylor Wimpey, in my opinion, is healthy, displaying low debt levels for the past 5 years in relation to the amount of cash it holds and net worth. In their most recent earnings release, the company’s net debt came in at 3.6% of its net worth, therefore the payments can be considered as sustainable moving forward with low-interest costs relative to cash. Taylor Wimpey worked hard to reduce debt since their merger in 2007 and this has proved to put them in a strong financial position to grow in the years since. As you can see below, the group’s net worth has grown steadily over the last 5 years.SSource
Let’s have a look at how the brokers are currently rating Taylor Wimpey. Looking at the broker ratings supplied by Hargreaves Lansdown, 4 brokers have a strong buy on the stock with price targets ranging between 189p and 230p with the sentiment slightly shifting towards the buy end in the last three months shown by the arrows on the slider on the right. This strong performer has no sell ratings and 3 neutral (hold) ratings.
A regular point for discussion within my reports is the dividend and the dividend yield, of which Taylor Wimpey has one of the strongest in the FTSE100. The full dividend is coming in at 10.33%, paid out in three parts as a special dividend, final dividend and interim dividend. Minus the special dividend, TW is paying 3.49% which is below the top 25% of dividend payers in the FTSE100, with this being said they do have a good track record of paying shareholders well through the special dividend in line with positive earnings.
In conclusion, Taylor Wimpey shows some good promise in the future holding a reasonable share of the UK homebuilding market, completing 14,822 homes out of a total 165,090 in 2018. For me, this is a great stock for the watchlist in the coming weeks to see some potential upside towards the 200.00p mark, as well as providing income along the way. Thank you for reading.
Telegraph. Taylor Wimpey sells American Business for £595M https://www.telegraph.co.uk/finance/newsbysector/constructionandproperty/8417770/Taylor-Wimpey-sells-American-business-for-595m.html
Taylor Wimpey About Us https://www.taylorwimpey.co.uk/about-us/who-we-are/our-history
Taylor Wimpey Wikipedia https://en.wikipedia.org/wiki/Taylor_Wimpey
Hargreaves Lansdown Taylor Wimpey https://www.hl.co.uk/shares/shares-search-results/t/taylor-wimpey-plc-ordinary-1p-shares
This article is not and should not be construed as an offer to sell, or the solicitation of an offer to purchase, or to subscribe for any investment. The owner, editor, writer and publisher and their associates are not responsible for errors or omissions. The author of this article is not a registered financial advisor. Readers should not view this material as offering investment related advice. Authors have taken information from what is perceived as reliable sources, but since the information source(s) are beyond our control, no representation or guarantee is made that it is complete or accurate. The reader precautions to ensure the accuracy of the information provided. Information collected and presented accepts information on the condition that errors or omissions shall not be made the basis for any claim, demand or cause for action. Past results are not necessarily indicative of future results. Any statements non-factual in nature constitute only current opinions, which are subject to change. The information presented in this article is not a specific buy or sell recommendation and is presented solely for informational purposes only. Not to be taken as financial advice. Investors are advised to obtain the advice of a qualified financial and investment advisor before entering any financial transaction.