By Lilly Vitorovich
LONDON -- U.K. house builder Taylor Wimpey /zigman2/quotes/208623755/delayed UK:TW -0.39% PLC said Friday that its order book has risen 73% to £971 million ($1.59 billion) since the end of last year, thanks to a stabilization in the U.K. housing market in recent months, and that it expects to further cut its £1.01 billion debt.
Taylor Wimpey, which recently strengthened its financial position with a £510 million capital raising, said it had been "encouraged by the ongoing stability in the U.K. housing market, but [remains] cautious with regard to the prospects of the wider economy and, in particular, the potential impact of rising unemployment." The company said it will continue to focus on cutting costs until the profile of any recovery becomes clearer.
Taylor Wimpey's cautious optimism is the first sign that encouraging data on the U.K. housing market is having an effect on house builders, which have been battered in the past couple of years by dwindling demand and falling prices. House prices in May climbed 2.6% from April, according to mortgage lender Halifax, the latest indication the slump in the residential property market may be bottoming out.
Still, the lack of lending by banks remains a major impediment to a solid and sustained recovery. The Council for Mortgage Lenders said Thursday gross lending fell in May to £10.3 billion from £10.5 billion in April.
Investors were nevertheless encouraged by the signs of stability and shares in the company jumped 10% in morning trading. Other house builders also saw their shares rise on the news. Redrow /zigman2/quotes/206663416/delayed UK:RDW -2.27% PLC gained 6%; Persimmon /zigman2/quotes/206444744/delayed UK:PSN -0.70% PLC was up 3.1%; Barratt Developments /zigman2/quotes/209812640/delayed UK:BDEV -1.98% PLC increased 6.8%; and Bovis Homes Group PLC rose 3.9%.
"While the [Taylor Wimpey] statement is a little bit better than maybe we would have expected, I think it's too early to get carried away it," said Panmure Gordon analyst Rachel Waring, noting rising unemployment remains an issue for the economy. Ms. Waring expects the company to book a loss before tax and exceptional items of £114.5 million for 2009.
Taylor Wimpey said in a trading update that its local business was "well placed to benefit from the more stable market conditions, as a result of the operational actions that we have taken since the start of 2008."
The level of unsold completed homes remains tightly controlled and the company said it expects to see an increase in the average selling price of completions in the second half of the year as a result of planned mix changes.
Taylor Wimpey, which has cut its U.K. outlets by 49 to 337 since December as a result of the slump, said it may increase outlet openings during the second half of 2009 if stability continues into the autumn.
"Whilst we remain cautious on land buying, opportunities are starting to emerge to purchase good quality land at prices that should be value-creating for Taylor Wimpey," the company said.
In North America, where Taylor Wimpey has 164 outlets following several closures, markets have "improved in recent months, albeit with geographical variations in the timing of this stabilization," it said. Pricing is generally stable following some falls in the first quarter.
The company's net debt stood at £1.01 billion at June 17 following its recent capital raising. Taylor Wimpey will release results for the six months to June 30 on Aug. 5.
Write to Lilly Vitorovich at firstname.lastname@example.org