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Friday 25 May 2018

Taylor Wimpey proves dust will settle on building slump

Housebuilder Taylor Wimpey is a considerably slimmed down business
Housebuilder Taylor Wimpey is a considerably slimmed down business

John Lynch

Imagine you were Rip Van Winkle and you fell asleep on an Irish building site in 2007 and woke up this morning after a six-year snooze. You would find it a lonely place.

For a start there would be no one around to nip down to buy you a breakfast roll. When you really shook the sleep out of your eyes, you would find that most of the revered and treasured names in Irish construction had vanished into the pale blue yonder, victims of the most savage recession in memory.

Something not dissimilar has happened to the British building sector, though we have been so focused on our own troubles many of us have failed to notice.

The tale of the once mighty Taylor Wimpey is a way of informing ourselves of the extraordinary changes that takeovers, private equity investment, swapping of assets, the separation of construction from house building and the recession has wrought on the building trade in the UK.

But the story of Taylor Wimpey also tells us that even the horrors of the slump do come to an end and there's always a future, if you are still in there battling.

Taylor Wimpey is of course the result of the merger in 2007 of two firms that were dear to the heart of Irish navvies over the previous half century. Both Taylor Woodrow and George Wimpey gave so much work to the unemployed Irish who had to trudge to Britain for 'the buildin'.

Following the merger in 2007, the French construction, toll road and car park operator Vinci bought Taylor Wimpey's UK construction division. Its US and Canadian house builders were hived off to a private equity company and other parts of the construction business were sold to the management.

Today, Taylor Wimpey is a focused house builder and the second largest in the UK, building in excess of 10,000 homes per annum. The company has been slimmed down pretty drastically.

As separate companies both Taylor Woodrow and Wimpey had made sizeable 'bets' on UK house building as the post- Millennium boom took off. Wimpey acquired the house building operations of McAlpine's (another name that tugs on Irish heart strings) and John Lang.

Taylor Woodrow splurged upwards on £1bn (€1.2bn) on two house building companies; the Bryant Group and Wilson Connolly.

The Wimpey and Taylor Woodrow merger was not blessed with good luck. The banking crises, the housing crash and the recession took over.

Two years after the merger the company's losses were £2.5bn and, but for a £500m rights issue in 2009, the company could have easily gone under.

Luck, along with some North American asset sales, has kept the group in an important position in the house building sector in the UK; its present land bank is now standing at 65,000 sites.

The company has been helped by the UK government orchestrating a recovery in the house building and construction industry.

A new planning regime was introduced which meant that where a local authority lacked development plans, and a builder had plans in that area, any subsequent appeal favoured the builder.

Up to recently the Bank of England helped by providing funds for housing, but revoked it last week fearing a new housing bubble.

This year Taylor Wimpey returned to profitability, helped by price rises, house prices are now 5pc higher than last year. The company is looking at operating margins of 16.5pc next year as against 11.20pc in 2012. In its heyday in 2007 it achieved 15pc.The company claims that it is fully sold for this year and has 50pc of its 2014 sales.

Today, Taylor Wimpey is in a much better space than at any time since the merger, with net debt of £60m, operating profits of £230m and a substantial land bank.

The complaints it had a few years ago, of land shortage and planning headaches, have eased. Its market value is now £3bn, with a P/E of 15, and an uninspiring dividend yield of 0.6pc.

The company share price is 106p today which, at the time of refinancing, stood at 24p and in 2009 could be had for 10p. The share price appears pricey with probably better value in the UK housing sector at the present moment.

Nothing in this section should be taken as a recommendation, either implicit or explicit, to buy or sell any of the shares mentioned.

Irish Independent

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