Taylor Wimpey (LSE: TW.) raised its full-year home completions forecast on Wednesday (July 31), giving its share price a small boost – it rose 2% in early trading.
The company now sets itself the goal of “at the upper end of the previous forecast range of 9,500 to 10,000“.
However, the outlook for operating results remains “in line with current market expectations“Is that why the market reacted so weakly?
Hard times
The optimistic forecasts cannot hide the fact that 2024 is still a tough year for housebuilders. Taylor Wimpey’s half-year figures are declining across the board.
Sales fell by 7.3%, which is not too bad. However, it led to a 22.6% drop in operating profit.
And profit before tax fell 58% to just £99.7 million, from £237.7 million in the first half of 2023. Basic earnings per share (EPS) also fell 58%, but adjusted EPS fell only 24% to 3.8 pence.
In addition, the company’s return on net operating assets is worrying, falling from 19.7% in the 2023 interim report to just 10.9%.
The positive side
However, it is not all doom and despair. In fact, when I look to the future, I would say it is not even close. I see brighter skies ahead.
The interim dividend is 4.8 pence per share, unchanged from 4.79 pence last year. This is part of Taylor Wimpey’s strategy to distribute 7.5 percent of net assets annually.
The money is there to pay for it too. The company reached the halfway point with £548m of net cash on the balance sheet. That’s net cash, not net debt, like so many companies suffer when their industries come under pressure.
I am looking forward to
The key that will surely help Taylor Wimpey and the others get back on track is a rate cut. So far, the Bank of England’s approach of keeping rates higher has hit the mortgage market hard.
But there is something else that could also make a big difference.
Since the new government came to power, Chancellor Rachel Reeves has been pushing for 1.5 million new homes to be built over the next five years. The aim is to overhaul planning to make construction easier. And in its latest update, Taylor Wimpey sounds optimistic about this.
But until the government’s words are followed by actions and we see results, this remains an uncertain matter.
A cheap purchase?
Taylor Wimpey’s share price has recovered much of its decline in 2021 and 2022, but is still well below its pre-IPO highs of early 2020.
Still, with current lower earnings, shares trade at 19 times forward earnings. That could drop to about 13 times by 2026 if earnings rebound as forecast.
The expected dividend yield is 6% and analysts expect it to be maintained over the next few years.
Overall, I think many now see the stock as fully valued, and given the near-term uncertainties, they may be right.
However, I believe long-term investors would be wise to consider Taylor Wimpey at this time.
The post Are Taylor Wimpey shares still cheap after first-half results? first appeared on The Motley Fool UK.
Further reading
Alan Oscroft does not own any of the stocks mentioned. The Motley Fool UK does not own any of the stocks mentioned. The views expressed in this article about the companies mentioned in this article are those of the author and as such may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.
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