FTSE 100: Taylor Wimpey shares up on £335m profit

A semi-completed housing estate on former farmland, a landscape that is fast changing to residential use by housing developer Taylor Wimpey at Netherton Grange, Youngwood Lane, Nailsea, on 7th November 2021, in Nailsea, North Somerset, England. Nearly 170 homes are being built here on the edge of Nailsea in rural North Somerset after detailed plans were approved. (Photo by Richard Baker / In Pictures via Getty Images)
Taylor Wimpey, which is one of the UK's largest residential developers, announced its pre-tax profits were up 16.3% on last year. Photo: Richard Baker/In Pictures via Getty

Taylor Wimpey (TW.L) shares jumped on Wednesday after the release of a positive half-year earnings report that came in "ahead of expectations".

After what was deemed "an excellent financial and operational performance" by CEO Jennie Daly, shares in the house builder rose by 2.21% to 122.70p.

In the trading update, the FTSE 100 (^FTSE) company reported many months of strong demand with the group's housing completion target now "ahead of guidance", with 6,790 completed homes in the first six months of 2022.

The house builder, which is one of the UK's largest residential developers, announced its pre-tax profits were up 16.3% on last year, to £334.5m ($407.8m).

This was despite strong headwinds from a rise in building cost inflation and the ending of the UK's stamp duty holiday.

Daly said the company's full-year operating profit is now expected to be "around the top end of the current market consensus range" and the value of the company's order book has increased from £2.6bn to £2.8bn.

The earnings report showed an “excellent” start to the year for the firm against strong headwinds from a difficult macroeconomic situation, according to Daly.

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She added: “While we recognise and are closely monitoring wider macro-economic and political uncertainty, housing market fundamentals remain positive, supported by an enduring supply and demand imbalance and good availability of attractively priced mortgages.”

However, the house builder's strong performance in the first six months of 2022 is at odds with the downward movement of its share price, dropping from approximately 180p in early January to the current price of around 120p.

Richard Hunter, head of markets at Interactive Investor, said: "The yawning gap between trading performance and share price performance continues, with Taylor Wimpey being the latest to highlight this disconnect with a strong showing".

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Hunter added: "The company has reported strong demand for the year, with current and future trading following the same trend.

"There are few signs of house price growth slowing, underpinned by a national housing shortage, interest rates at historically low levels, and widespread mortgage availability.

A Taylor Wimpey housing development in Telford where building work has ceased as the UK continues in lockdown to help curb the spread of the coronavirus. (Photo by Nick Potts/PA Images via Getty Images)
Taylor Wimpey shares jumped after the release of a positive half-year earnings report that came in 'ahead of expectations'. Photo: Nick Potts/PA via Getty

"Indeed, the group has highlighted that house price growth has fully offset build cost inflation, which is currently running between 9% and 10%."

The housing sector has been under pressure from a number of factors including the ending of the stamp duty holiday, a revamped Help to Buy scheme and general concerns about the future trajectory of the UK's economy.

The increasing cost of living in the UK due to successive Bank of England interest rate hikes, and the inflationary pressure of food and energy prices are restricting the spending power of the majority of households in the UK.

However, this spending restriction has "yet to filter through to the housebuilding sector in terms of actual trading, and Taylor Wimpey is no exception", Hunter said.

Read more: Bank of England set to raise UK interest rates to 1.75%

AJ Bell investment director Russ Mould said: “First half results from Taylor Wimpey were impressive, no question about it. To be guiding toward profit at the top end of consensus forecasts, despite facing challenges around surging raw material costs, shortages of skilled workers and lingering supply chain issues, is no mean feat.

“Unlike some of its peers, Taylor Wimpey is on track to hit volume targets and, like a gazelle eluding a hungry lion, house price growth somehow continues to outpace inflationary and interest rate pressures for now.

However Mould cautioned that "the way the housebuilders have been sold off in 2022, with Taylor Wimpey among them, suggests the market reckons they can’t win this race forever".

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