Margins and operating profit improve at Taylor Wimpey

17th Jan 2012 07:21

Housebuilder Taylor Wimpey said trading conditions have remained robust since its interim update in November 2011 and it expects to post an 80% increase in operating profit for the second half of 2011.While momentum continues Taylor Wimpey has also benefited from restructuring and cost cutting including the disposal of its North American business. It also underwent a senior management reshuffle and a second refinancing last year.Commenting on the improvement in margins the group said, "We anticipate achieving our target of double-digit operating margins in the UK in the second half of 2011, ahead of schedule, with a full year margin ahead of that reported both in the first half of 2011 and in the 2010 full year." Home completions increased by 2% to 10,180 from 9,962 in 2010, of which 20% were affordable housing completions. Its average selling prices on private sales rose marginally to £185,000 from £184,000, against what is said was "a backdrop of broadly stable house prices in the wider market." Northland Capital Partners, which rates the shares a "hold", noted that activity remained firm to the end of 2011, helping both Taylor Wimpey and the industry as a whole. Its preferred investment in the sector remains Berkeley Group or, for a broader regional recovery, Bellway, which has a trading update due on February 7th. "Our reservations as to the primary drivers of Taylor Wimpey's strategy have been overcome to a degree but the time needed to prove the new strategy is clearly likely to remain a period of uncertainty and restrained share price recovery. It is also time that could be spent in the more certain investment of those developers getting this market approach right from before the last downturn," Northland said.Panmure Gordon described the statement from Taylor Wimpey as a "strong trading update". "In our view, Taylor Wimpey continues to execute its turnover strategy and, following the sale of the North American business, the group has seen massive operational improvements. Furthermore, most of the improvement to date has come from efficiencies rather than the benefit of new land, with this likely to [have an] impact on H2 [second half] 2012 and 2013. Following a strong trading update, likely forecast upgrades and a strong outlook, we reiterate our Buy recommendation and 50p target price," the broker said.cj