Taylor Wimpey sales rate slows in second half

Housebuilder Taylor Wimpey has reported a slowing in its sales rate in the second half of the year but said it still expected full year results to hit their targets.

For the second half of 2017, the company has sold 0.71 sales per outlet per week, taking the year-to-date rate to 0.81 from 0.87 in the first half.

However, the rate has improved to 0.73 over the last eight weeks, which is the same as it was last year.

But down on last year was the order book, excluding joint ventures, of 8,751 homes at a value of £2.2bn versus 8,981 homes at a value of £2.3bn.

But on the upside, even though build costs are expected to increase 3-4% this year, as management has previously indicated, Taylor Wimpey said it was on track to deliver results for the full year in line with internal expectations.

Directors expect to deliver an increase in the operating profit margin from last year's 20.8%, plus a return on net operating assets of over 30%.

Having paid out £450m to investors in dividends so far, as part of a target to return £1.3bn to investors in the three financial years to 2018, it was also confirmed that next year's total dividend will be £500m.

To that end, net cash is expected to be around £500m by the end of the year, up from the £429m at the half year.

Chief executive Pete Redfern said: "While we are alert to potential political and economic risks, demand for new housing remains high across the UK and market conditions are favourable. Notwithstanding the recent small increase in the base rate, we have continued to see stability in trading patterns."

He added: "With a strong balance sheet in place and a high-quality landbank, our business is very well positioned to deliver sustainable growth".

He reiterated the board's intent to make "further material capital returns in 2019 and beyond", with more details to be given at a strategy day next year.

The company said underlying market conditions remain healthy and it has seen "no evidence of a change in trading patterns" but that it was "alert to the potential risks from heightened political and economic uncertainty".

Shares in the company were struggling for direction on Monday morning at 193p.

Analysts at Barclays recently said that investor expectations over the outlook for housebuilding stocks "have run ahead of themselves".

With pressure to fix the housing supply shortage mounting, the Chancellor is expected to have something "impactful" up his sleeve in the Budget next week to provide a big boost for the sector, but Barclays suggested investors are over-optimistic about how much of a different it will make.

Among the various pressures on Philip Hammond, Communities minister Sajid Javid has proposed a major state housebuilding push to ease the housing crisis, with analysts seeing one side-effect being an end to the "cosy and golden trading climate" that large building companies currently enjoy.

Last month, Javid said that the government would consider increasing borrowing to help fund a serious increase in housing output.

Analyst Neil Wilson from ETX Capital agreed that investors will be less concerned about current trading conditions that what the chancellor has up his sleeve in the Budget next week.

"Certainly some more support for homebuilders is on the cards given the nation’s housing shortage and pressure on the government to act to help younger voters. However the prospect of anything radical being unleashed is small as the government is not keen on upsetting core Tory heartlands by, for instance, allowing green belt development.

"Further demand-side help is a given – Help to Buy enhancement/extensions - but it remains to be seen whether the government is really willing to tackle the supply-side."

He said currently demand remained high and market conditions favourable thanks to the Help to Buy scheme, low mortgage rates and low unemployment.

Laith Khalaf at broker Hargreaves Lansdown said the interest rate rise from the Bank of England this month "clearly raises a few eyebrows when it comes to the housebuilding sector, which of course relies on mortgages to support customer activity. However the rate rise was modest, and borrowing money to buy a house is still incredibly cheap by historical standards, and looks set to remain so for some time to come.

"Higher rates may constrain house price growth looking forward, but there is still a lot of wind at the back of the housebuilding sector. The big swing factor is Brexit, and a bad result here could knock the UK economy, and the housebuilding sector."