COMPANIES Further evidence of a upturn in the housebuilding industry from Taylor Wimpey sent sector shares sharply higher yesterday.
Orders for Taylor Wimpey homes in the UK have risen 73 per cent since the start of the year and the business may break even in the second half, the company revealed in an annual meeting trading statement.
Its UK order book has risen to £971m from the end of last year, when £562m of homes were on order.
The company, the UK’s second-largest homebuilder, has already sold more than 80 per cent of the 10,000-11,000 properties it expects to sell in the UK this year.
The target is significantly lower than Taylor Wimpey’s peak sales of 15,000 in 2007, but represents a remarkable recovery for a company that some investors had feared was facing insolvency.
The shares rose 3p to close at 34p, and the news also cheered the broader housebuilding sector, sending shares up by an average of 5 per cent.
Shares in Barratt, Taylor Wimpey’s nearest peer, and Wren, the small-cap retirement specialist, rose about 7 per cent, while Telford, the indebted small-cap east London builder, jumped 14 per cent.
Peter Redfern, Taylor Wimpey chief executive, said that the company even saw a chance of average selling prices rising in the second half of the year, as it moves its focus to more marketable, higher-value properties.
“From a sales point of view we could probably be selling more properties [than our target] but we’d be starving future years if we did,” he said. Keeping volumes lower in the near term would give more opportunities to sell at better profit margins in the medium term.
Net debt – which swelled from £526m to £1.7bn this time last year and threatened to overwhelm the company when it was forced to postpone testing of bank-imposed conditions on its debt in December and March – was back down at £1bn as a result of a £510m cash call last month.
Taylor Wimpey’s rise and fall has tracked the fortunes of the broader industry in recent years. The merger with George Wimpey in 2007 marked the peak in housebuilding share prices, but its nine-month refinancing discussions from last June saw it lose more than 99 per cent of its market capitalisation.
As recently as April, the company suffered a £2bn pre-tax loss as its mounting debts and the collapse in house prices forced it into billions of pounds of paper losses on top of disappearing profit margins.
However, its statements since then have been among the most optimistic of its peers and the share price has risen nearly eightfold since it plumbed the depths of 4.4p in November.
That performance appeared to have cheered shareholders, who overwhelmingly backed management at Friday’s annual meeting.
“There were a few professional small investors who asked a few difficult questions but no real aggression,” said Mr Redfern.
The trading update chimes with a recent string of positive news from the market, but many analysts argue that the most difficult period for housebuilders lies ahead.
Most concur that further writedowns will be needed to the value of Taylor Wimpey’s land bank before its half-year results, and in the meantime mortgage lending is constrained and lenders’ valuations are often pushing down the estimated price of properties.
The company’s North America business, which accounted for about a quarter of total revenue last year, was also showing some early signs of recovery although Taylor Wimpey had seen stability only in the past three months, as opposed to the past six months in the UK.
Analysts said they believe that Taylor Wimpey will withdraw from its operations in the US, Canada, Spain and Gibraltar when conditions are right, raising cash that could make it one of the best-capitalised builders in the sector.
