News Column

Housebuilder Taylor Wimpey optimistic as profit margins widen

July 8, 2014

Katie Allen,

Housebuilder Taylor Wimpey has reported a strong first half to the year and says new rules to rein in the property market are more likely to help than hinder business.

Prices for its new homes and sales rates were at the upper end of the firm's expectations in the first six months of 2014 and profit margins had improved.

Taylor Wimpey said it continued to benefit from the government's Help to Buy scheme and it appeared unconcerned about Bank of England moves on mortgage lending. Against the backdrop of warnings of a possible price bubble, the Bank's financial policy committee introduced measures lastmonth that could bite if house prices rise more than 20% by early 2017. Those measures followed stricter regulations on home loans coming into force in April under the mortgage market review.

Taylor Wimpey said in its trading update: "We are focused on the long term and delivering sustainable returns for our shareholders and so welcome sensible measures to reduce long-term risk and protect stability, such as the new regulations following the mortgage market review and the measures announced by the Bank of England in June.

"We consider these to be positive moves for the housing market and our business, reducing the risk of overheating and increasing the long-term health of the market. We have not experienced, nor do we anticipate, any significant adverse impact on our customers."

It did not mention the possible effects of a Bank move to raise interest rates from their current record low of 0.5%. Financial markets appear to pricing in a hike in rates by the end of this year and analysts say the prospect of higher borrowing costs has weighed recently on housebuilders' shares.

Taylor Wimpey was positive about the outlook, however, and said it expects operating profit margin for the first half of 2014 to be around 16%, up from 13.1% a year earlier.

"Customer confidence remains good, with increased employment security and a more affordable and accessible mortgage market underpinning demand," it said.

The housebuilder said the average selling price of completed houses rose to around 206,000 from 188,000 a year earlier. Looking ahead, the company highlights a solid order book for homes and continued support from Help to Buy.

"We believe that the market risk in the short to medium term has reduced in the first half of 2014 due to a general underlying economic improvement, the extension of Help to Buy to 2020 and balanced prudential measures to reduce long term risk," the trading statement said.

Along with other housebuilders, the company's shares enjoyed a rally in the early months of this year as the housing market gathered steam. But signs that activity may be coming off the boil somewhat have knocked the share price back from its highs in recent months. By mid-session on Monday, the shares were down 2% to 114.7p, compared with a high for this year of 130p hit in February.

Michael Hewson, chief market analyst at CMC Markets UK said after the slide in housebuilder prices since March there appeared to be some fresh caution among investors.

"It would appear that while the short term outlook for housing continues to remain positive, all the talk about elevated house prices and the uncertainty over the timing of a possible interest rate rise, as well as recent measures to limit mortgage availability, has made investors more cautious about piling into a sector that is notoriously sensitive to cyclical cross winds," he said.

But looking at the prospects of Taylor Wimpey and rival housebuilders Persimmon and Bovis Homes, he added: "On a long-term view all three companies trade on a fairly low forward earnings estimate, and with housing demand set to remain strong, the prognosis is likely to be a good one for investors prepared to be patient."

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Source: Guardian Web

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