Firm’s shares go up by 13%
Amid confusion in the housing market, one thing is for sure: if your company is making money, with the prospect of making even more, then your share price will go up. And so it was for Taylor Wimpey this week. After releasing a solid set of results, showing a turnaround from a loss of £96m in 2009 to a profit of £75m in 2010, its shares were up almost 13% in a week.
Taylor Wimpey has struggled to pay off its debts and still has a net debt of £654m, but there is now a positive catalyst pushing its shares forward. It could be weeks, maybe even days, away from announcing the sale of its operations in the US and Canada. Analysts think this sale could generate proceeds of over £600m - wiping out its debt overnight. If this is the case, then despite losing its business with the best recovery prospects (the US) and its best performing business (Canada), it could resume land buying in the UK before prices take off. It is this potential change that is seeing its shares outperform its rivals.
Persimmon and Barratt have also released their results recently, hitting their sales and profit expectations, but not exactly shooting the lights out.
There have been conflicting reports about the housing market, adding to the confusion. Nationwide suggested house prices increased by 0.3% in February while the Halifax said prices were down 0.9%.
It’s difficult to know which to believe. However, there is nothing in the short term that is expected to provide a boost to the housing market. Quite the opposite in fact.
Public sector spending cuts and related redundancies are likely to kick in from April, interest rates could be higher by the summer and prices are generally increasing.
In a nutshell, without “special situations” like the impending sale of Taylor Wimpey’s US business, the shares of the housebuilders are unlikely to see significant increases.