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The Taylor Wimpey share price: value or not?

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Andy Ross
·3-min read
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Modern suburban family houses with car on driveway
Modern suburban family houses with car on driveway

The government has been giving a lot of support to housebuilders to get them through the last year. A freeze on Stamp Duty is the most recent enticement for buyers and one that’s likely to push up house prices further.

One housebuilder that reported results recently is FTSE 100-listed Taylor Wimpey (LSE: TW). So have government initiatives helped it? Yes, but not completely.

Taylor Wimpey results

Full-year revenue at the firm fell 35.7% to £2.8bn. This reflected reduced completions because of the pandemic.

Apart from the fall in revenue however, there were more positive signs for the future. Its overall average selling price rose to £288,000. In 2019 it was £269,000. More momentum like this will feed straight through to the bottom line.

Also, net cash rose to £719.4m from £545.7m. The business also accelerated land purchases, which means it has plenty of scope to develop further.

Before the pandemic, housebuilders were prodigious dividend-payers. For me, the dividend is still a key attraction when it comes to investing in shares within the industry. As such I was pleased to see that a final dividend of 4.14p was announced.

Taylor Wimpey share price

The results above are generally positive. The company is operating well and that translates into good profits now and, in my opinion, into the future as well.

That partly explains why the share price is up 15% so far this year. Yet despite the rise, I think the housebuilders generally are good value and Taylor Wimpey, in my eyes, is no exception.

Of course, the risks to Taylor Wimpey are that government withdraws support from the housing market too quickly, or that banks tighten up on mortgage criteria, reducing demand for houses and causing prices to fall.

A FTSE 100 peer

There’s a sector peer I like more. Persimmon (LSE: PSN) is another FTSE 100 housebuilder. The company has a new CEO, who has joined from transport company National Express. This will hopefully take it through its next stage of recovery from building quality scandals that have dogged it in the past.

Personally, I think Persimmon’s shares are even better value than Taylor Wimpey’s. For one, its revenue has fallen far less, with a decline of 8.8% reported in its most recent results. I also expect Persimmon to be more aggressive in rewarding shareholders with dividends over the course of 2021.

How so? Well, Persimmon has an even stronger cash position, possibly because it has been buying up less land through this uncertain time. It has around £1.2bn of net cash.

The group is expecting completion volumes to recover nearly to 2019 levels during the first half of the year.

A risk with this share is that its reputation is tarnished for a long time. Another is its reliance on government support for the housing market and relative expensiveness compared to peers when you look at the price-to-book value.

With Persimmon shares only up 8% so far this year, I think it has some room to catch up with Taylor Wimpey and the underperformance will be rectified. I see little reason why its shares shouldn’t have risen by the same amount, if not more than its rival. That’s why I’m more likely to add more Persimmon shares to my own portfolio.

The post The Taylor Wimpey share price: value or not? appeared first on The Motley Fool UK.

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Andy Ross owns shares in Persimmon. 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.

Motley Fool UK 2021