Are Taylor Wimpey shares a good investment?

Taylor Wimpey announced operating profits are set to shrink by half, but is this secretly the time for long-term investors to buy shares?

by | Last updated 26 Sep, 2023 | Real Estate

A young family moving into a new home

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Taylor Wimpey (LSE:TW) shares have been on a volatile ride after the company announced that it expects annual operating profits to halve in its current year amid wider housing market stress. The home builder has pledged to ramp up the construction of new homes to offset the ongoing challenges.

However, even with higher volumes, the impact of inflation and subsequent drop in home prices has and will likely continue to take a toll on profits.

Key Points

  • The home construction company plans to build 10,000 to 10,500 homes in the current financial year.
  • Operating Profit is expected to be reduced in half this fiscal year.
  • Taylor Wimpey is focusing on building homes according to the 2025 Future Homes Standard (FHS).

What does Taylor Wimpey do?

Taylor Wimpey is one of the largest residential developers in the UK. It is an FTSE 100 company that was incorporated in 2007 after the successful merger of two rival companies, Taylor Woodrow and George Wimpey.

The company builds and sells over 10,000 homes each year, with the support of its 5,000-plus employees. Through their work, they make a positive contribution to the communities in which they operate. Under the leadership of CEO Jennifer Daly, Taylor Wimpey is successfully trading on the London Stock Exchange.

How do the financials look?

As previously mentioned, 2023 has been a difficult year for the business in terms of profits. The continuously declining property market and high operational costs have combined to put huge pressure on the construction sector.

Looking at the current figures, the company announced profits to be slashed in half this year. On the other hand, there has been no reduction in the construction projects of the company. They plan to build 10,000 to 10,500 homes in the current financial year.

Amongst all this crisis, the company remains steadfast and committed to returning to shareholders in the form of dividends. Just recently, the construction company announced a cash dividend of 4.79p.

The bull case for the Taylor Wimpey share price

Taylor Wimpey is a homebuilder. The demand for homes in the UK is still very high, and Taylor Wimpey will continue to help build them. I believe this is one of the biggest strengths and growth factors for the company. Amidst all difficult times, the company will continue to operate and perform.

Another growth driver is the commitment towards proofing their homes and achieving the 2025 Future Homes Standard (FHS)1. According to these standards, these homes are energy efficient in terms of fuel and power conservation.

The Taylor Wimpey team is busy trialling prototypes that will provide significant insight into how to address major industry challenges as the first research concept testing low-carbon technologies through multi-specification prototype homes on a live development site.

The bear case for the Taylor Wimpey share price

One of the biggest risks for the company is that it is trapped in its own restriction of operating in the UK market only. European downturn and economic downfall, specifically in the housing sector, have been affecting the company’s financials. And I think it’s likely this will continue in the future.

The housing market is notoriously cyclical. And while the firm has weathered similar economic storms in the past, the company has required considerable time to recover in some instances.

Taylor Wimpey share price prediction

The majority of the research analysts have given a hold stance on Taylor Wimpey shares. They have predicted a share price forecast range from 115p to 157p. Compared to the current share price of around 122p, that suggests the stock is currently trading on the lower end of expectations.

Should I buy Taylor Wimpey shares today?

Since the start of 2023, Taylor Wimpey shares have been following a mixed trend of bullish and bearish. However, it is nowhere near its peak price of 175p in 2021.

While the stock has depreciated a lot, what I am looking at is its future. Personally, I think the recovery of the British housing market could take several years. And while the firm appears well-positioned to capitalise on this trend, investors are going to need a great deal of patience. This is especially true if the British economy takes a sudden turn for the worse.

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Article sources

  1. Taylor Wimpey, Trialling our homes of the future 

Saima Naveed does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. Views expressed on the companies and assets mentioned in this article are those of the writer and, therefore, may differ from the opinions of analysts in The Money Cog Premium services.

Written By

Saima Naveed

Saima spent the early days of her career advancing the finance office of a prominent manufacturing business. After taking a sabbatical, she decided to use her expert knowledge and apply it to the stock market. Now, 10 years later, she manages a substantial portfolio built using detailed and thorough analysis.

Outside The Money Cog, Saima is an avid supporter of empowering women in the workplace. She is currently working very closely with Women of Wonders Pakistan to help other women achieve their career goals.

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Edited & Fact Checked By
Zaven Boyrazian MSc

Zaven has worked in several industries throughout his career, from aircraft factories to game development studios. He has been actively investing in the stock market for the better part of a decade, managing over $1 million across multiple portfolios.

Specializing in corporate valuation, Zaven employs a modern take on the principles set out by Benjamin Graham to find new opportunities at fair prices.

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