Shares in UK house builder Taylor Wimpey (TW.) topped the FTSE 100 leaderboard with a 4.7% rally to 172.5p after the firm swung to a significant profit in the first half and raised full year earnings guidance.
Revenues almost trebled from a year ago to £2.2 billion, as home completions rose from 2,771 to 7,303, driving operating profits to £424 million against a loss of £16 million in the first half of last year.
Chief executive Pete Redfern commented, ‘We came into this year in a strong place and we ended the first half in a strong place. We delivered a record performance and a strong operating margin which reflects tight cost discipline as well as higher completions in the period.’
For the full year, the firm now expects operating profits to be in the region of £820 million compared with a consensus of £779 million and a top estimate of £808 million, which means analysts will need to raise their forecasts.
The firm said it had seen ‘strong demand for homes underpinned by low interest rates, good mortgage availability and government support for customers in the form of Help to Buy’.
This translates into a strong forward sales position and an order book of £2.7 billion or just under 10,600 new homes. As of the start of August, the firm was 99% forward sold for private completions for this year.
COSTS BEING PASSED ON
While it acknowledged costs were rising, in particular in building materials as the supply chain recovers post-pandemic, the company said additional costs were ‘fully offset by healthy levels of house price growth’.
Moreover, land costs as a percentage of average selling costs have fallen considerably since last year and now stand at roughly 14% instead of 20% previously.
Tight cost control and higher selling prices meant the operating margin reached 19.3%, on its way to the firm’s 21% to 22% medium-term target.
Despite fears the tapering of the stamp duty tax holiday from £500,000 to £250,000 would lead to a sharp slowdown both in prices and transaction, the latest indicators show the housing market to be more resilient than expected.
The Nationwide index, which calculates the average price of a house in the UK, has been rising steadily all year, and despite a slight dip in July compared with June, still shows values rising at a 10% annual clip.
The Rightmove (RMV) index, which is based on actual selling prices for properties on the portal, has been registering mid single-digit price inflation for the past 12 months with the average house price reaching £338,447 in July.
Disclaimer: Author Ian Conway has a personal investment in Rightmove
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