Taylor Wimpey PLC (LSE:TW.) shares fell almost 4% after the housebuilder cut its shareholder distribution policy after weaker demand and rising costs pushed first-half underlying profit down by almost a fifth.
The FTSE 250-listed group said annual shareholder returns would now be set at 4% of net assets. It blamed the "prolonged market downturn", which has reduced expected profitability and cash generation.
Adjusted operating profit fell 19.4% to £129.7 million in the six months to June, despite revenue rising 1.7% to £1.7 billion. The operating margin narrowed to 7.7% from 9.7%.
Profit before tax was £116.8 million, compared with a £92.1 million loss a year earlier, when the company booked substantial exceptional charges related to building safety provisions.
UK completions excluding joint ventures fell to 4,723 homes from 4,894. The average selling price rose 6.7% to £334,000, mainly because of changes in the regional and product mix rather than underlying house-price growth.
Taylor Wimpey expects to complete between 10,600 and 10,800 UK homes this year – the lower half of the range given in March. It warned that market conditions would remain challenging, with prices below last year's levels and build-cost inflation of around 3-4%.
The latest update suggests conditions have weakened since April, when Taylor Wimpey described trading as "steady" but warned of pressure on selling prices and higher build cost inflation. Its order book has fallen further from £2.2 billion to £2 billion, while underlying prices are now around 2% below last year compared with a 1% decline reported in the spring.
Net cash almost halved year-on-year to £168.6 million. The company expects this to recover to around £250 million by the year-end, after approximately £100 million of cladding-related payments.
Chief executive Jennie Daly said affordability remained stretched and buyers were "highly price conscious", with transactions taking longer to complete.
"We are managing the business tightly, controlling costs and building resilience for an improved housing market when it comes."
The shares fell almost 8% in early trade but by early afternoon were down around 3.8% at 79.91p.
Broker Peel Hunt noted that since July, the sales rate has averaged 0.55x compared to 0.59 last year, and pricing remains circa 2% below the prior year.
"Given the pricing and build cost backdrop, we see consensus PBT falling by 5-10%, with a similar decline likely in the outer years."
The shares had already fallen around 23% since the start of the year, in line with the larger-cap peer group.
Stifel said adjusted PBT beat the consensus forecast of £93 million due better-than-expected volumes in the half.
Stifel also expect consensus adjusted PBT estimates will fall 5-10% on the revised guidance, which was "consistent with consensus, but we expect margin estimates to soften, mainly as selling prices are now 2% below last year".
"Renewed share price outperformance will need improving returns and progress towards CMD targets."
** UPDATE: Adds share price and broker comments **
