Taylor Wimpey interim profits fall but special divi announced

FTSE 100 housebuilder Taylor Wimpey reported a 24% drop in first-half pre-tax profit on Tuesday as it put aside £130m for homebuyers that were affected by a leasehold scandal.

In the half-year period to 2 July, pre-tax profit fell to £205m from £268.8m in the first half of last year as the group recorded a £130m provision as an exceptional item to provide redress to customers who were sold leasehold properties where the ground rent doubles every 10 years.

Revenue rose 18.5% to £1.7bn and the company completed a total of 6,580 homes, excluding joint ventures, up 9.3% on the year before.

Total average selling prices rose 6.3% to £253,000, excluding joint ventures, but were lower than in the second half of last year.

However build costs were seen increasing, up 3-4% over the last year, mainly driven by labour costs, and are expected to continue on this trend for the remainder of the year.

Taylor Wimpey said its target to return £1.3bn in dividends over 2016-18 will be achieved, as it announced a special dividend of £340m, or around 10.4p per share, to be paid in July 2018.

Chief executive Pete Redfern said: "Trading through the first half of 2017 has been very positive, supported by favourable UK housing market fundamentals and good customer confidence. In the central London market in particular, we are pleased to see improved customer confidence following a period of uncertainty.

“Although the wider political backdrop could have an impact on confidence levels and market dynamics, we have seen no material change in trading since the General Election, and our first half performance has been strong.

"Our business is built to maximise performance in all market conditions, benefiting from a robust balance sheet and high-quality landbank. With a strong forward order book and a disciplined strategy to manage the business through the cycle, we remain on track to meet both our full year objectives and medium term strategic goals.”

TWY shares rose 1% to 192.3p on Tuesday by just after midday.

Analyst Laith Khalaf at Hargreaves Lansdown said the cost of tackling the punitive leasehold issue, covering houses sold between 2007 and 2011, loomed large over this set of results, however the trading environment still looks very positive.

"Taylor Wimpey is selling more houses at higher prices, and quite simply that is driving profits and returns to shareholders. To that end the housebuilder has announced a further special dividend coming next year in a show of continued confidence.

Khalaf said that confidence looks justified for the foreseeable future, with Help to Buy still providing significant support for the housing market, and low interest rates are helping to keep mortgages affordable amid high demand for houses - though there are "a few warning signs" for the sector of increasing building costs, house price growth slowing, a weaker economic environment and wavering consumer confidence.

"However these concerns add up to tailwinds abating, rather than disappearing altogether," he said.

Broker Shore Capital said the numbers look a lot better than they might have expected but it was felt likely that there would be a rebalancing of the first and second halves last year moved from a fairly stable 39-40% of full year profit before tax down to 35%.

Although not really explicit in the outlook statement, ShoreCap Robin Hardy said he read it as indicating that "there should be no extrapolation of the growth rate in H1" and that investors should continue to look at previous guidance for the full year, of unit sales up 4-5% rather than the 9.3% seen in the second half.

"We understand that full year EBIT margin guidance will still be for a shade above 21%, versus 20.8% last year."

ShoreCap's recommendation remained hold. "We still believe that there is insufficient recognition of the risks to margins across the volume housing sector as external market headwinds stiffen (no price growth, rising costs, falling mortgage approvals and now rising higher LTV mortgage rates) plus we still see a risk of negative impact from changes in core housing policy that is more likely to favour our providers of housing. We also still a risk of further charges being needed for leasehold issues."