Earnings: Taylor Wimpey shares steady on results day and now display value
When housebuilder Persimmon plunged yesterday, Taylor Wimpey (LSE: TW) shares dropped almost 5% in sympathy.
The market didnât like Persimmonâs profit warning. But what about Taylor Wimpeyâs full-year results this morning?
To my reading, both the figures for 2022 and the outlook statement look better than Persimmonâs. And on top of that, Taylor Wimpey is displaying better value characteristics. For example, with the share price near 118p, the price-to-tangible book value is about 0.98. And that compares with Persimmonâs of around 1.25.
A modest slide in the dividend
But one of the features of Persimmonâs report was a big downward rebasing of shareholder dividends. However, Taylor Wimpeyâs multi-year record of dividend progression has been smoother.
And looking ahead, the company said its dividend policy aims to pay out 7.5% of net assets annually throughout the cycle, or at least Â£250m. So if that happens, dividends may not fall too far. After all, the cost of dividends for 2022 was around Â£324m.
City analysts have pencilled in an estimate for total 2023 dividends of 8.75p per share. And that compares to total ordinary dividends for 2022 of 9.4p per shares. So the decline is just under 7% — not too bad.
Meanwhile, set against that estimate, the forward-looking dividend yield for 2023 is running just above 7%. And that looks like another indicator for decent value with Taylor Wimpey shares.
However, operational conditions can change fast for any business. And thatâs especially true in a cyclical sector such as housebuilding. Nevertheless, the share price is flat today and didn’t extend its decline on the release of todayâs report. But for context, the stock is down by around 18% over the past year.
Better sales so far in 2023
The figures for 2022 show revenue, earnings and cash balances all well up. But housebuilders experienced softening demand in the fourth quarter of the year. However, the directors said current trading in 2023 shows signs of improvement. And better sales follow recent reductions in mortgage rates.
But there are also âearly signs of stabilised customer confidenceâ. And the âusualâ seasonal trading patterns are working to the companyâs benefit. Meanwhile, selling prices have been holding up quite well.
Nevertheless, the cancellation rate is running near 17%, up from 14% a year ago. And the reservation rate is âsignificantlyâ lower than in recent years because of customersâ affordability concerns. Therefore, the company has adjusted its build programmes for lower demand in the year ahead.
On 26 February, the order book stood at around Â£2,154m. And thatâs down from Â£2,899m a year earlier. But directors reckon the business is âagile and ready to respond quickly to changing market conditionsâ.
The company has a strong balance sheet and that should help it get through the current weaker patch of trading. But the big question is, will conditions in the sector deteriorate further? And the answer to that question is hard to guess. Yet there is some evidence from both Taylor Wimpey and Persimmon that conditions have been settling down so far this year.
So is it a good idea to buy Taylor Wimpey shares now to hold long term? Investors must form their own conclusions based on research.
The post Earnings: Taylor Wimpey shares steady on results day and now display value appeared first on The Motley Fool UK.
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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore 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.