Taylor Wimpey resumes dividend as margin focus pays off

Published 29th Feb 2012

British housebuilder Taylor Wimpey (TW.L) resumed paying a dividend on Wednesday as its tactic of focusing on margin rather than volume saw it swing back to a full-year profit.

The sale of its North American business in 2011 had also improved its financial position, Taylor Wimpey said, allowing it to reduce debt to 117 million pounds from 655 million, and propose a final dividend of 0.38 pence.

"Off the back of strong financial returns, a stable market, a very strong balance sheet and capital base, we have resumed dividend payments for the first time since 2007," chief executive Pete Redfern told journalists.

"We are also starting to talk about the potential for capital returns over the cycle. Not immediately ... but as we get into a stronger market, business will generate an awful lot of cash and we do think that it is appropriate to return that cash to shareholders."

Taylor Wimpey shares were down 5.3 percent at 49.85 pence by 1105 GMT, having risen 6 percent on Tuesday after fellow housebuilder Persimmon said it would return 1.9 billion pounds to shareholders.

"The sector was pulled up hugely after Persimmon's announcement yesterday. It is just a bit of profit-taking this morning, results are in line, there are no real shocks in there," said Shore Capital analyst Gavin Jago, who maintained a hold rating on the stock.

Taylor Wimpey's shares have risen over 40 percent since a trading update in January flagged the full-year results, with only the dividend payment coming as a surprise.

With Britain teetering on the brink of recession, its housing market has seen little growth in prices and low levels of transactions.

However, many builders have still prospered by taking advantage of cheap land prices, keeping a tight rein on supplies of new homes, and focusing on stronger performing parts of the country, like London and the south east of England.

Rivals Bovis Homes (BVS.L) and Redrow (RDW.L), both recently posted higher profits.

"Like other housebuilders the group has seen good momentum in current trade, but for the time being we maintain our full year 2012 forecasts. With the stock racing past our target price in recent days our recommendation moves back to Hold from Buy," Panmure Gordon analysts said in a research note.


POSITIVE BUT CAUTIOUS

Taylor Wimpey swung to an underlying pretax profit of 90 million pounds ($143 million) for 2011 from a loss of 28 million pounds in 2010, on continuing operations, close to a forecast for 88 million pounds in a Thomson Reuters I/B/E/S poll.

Britain's second largest housebuilder by volume said the first weeks of 2012 had mirrored the positive environment of the second half of 2011, with strong visitor numbers and reservations and an increase of 18 percent in its order book.

Taylor Wimpey's order book ended 2011 up 17 percent at 835 million pounds, while its operating margin hit 10 percent in the second half of the year, ahead of its scheduled goal of a double digit margin in 2012.

The company said it would continue to favour improving margins rather than increasing volumes and added its land bank, increased order book and strong balance sheet would give it a defensive position should market conditions deteriorate.

"We do not think it is the time for big bets. We think it is the time for sticking to the knitting and doing very strong things with our operating business but the UK housing market in itself seems pretty solid," Redfern said.

Taylor Wimpey said completions rose 2.2 percent to 10,180 in 2011 and its average selling price was flat at 171,000 pounds.

Source: ' 'Reuters' '

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