British house-builder Taylor Wimpey came about from the merger of former rivals Taylor Woodrow and George Wimpey in 2007. The new company was left with a lot of debt at what proved to be the wrong time and, when the credit crunch hit and the housing market turned, saw its share price fall to a low of just 3p.
After an attempt to raise capital in 2008 failed, Taylor Wimpey tried again a year later. By that time the market environment had improved slightly and, while it was initially touch and go, the new equity issue eventually got away with the shares priced at 25p.
At this point the outlook for the UK housing market was still far from certain, but Taylor Wimpey’s performance over the three years since then is worthy of note. In that time – if one excludes the apparently unsinkable central London sector, where the business is not so active anyway – the UK housing market has been more or less flat in terms of both house prices and the number of new homes built.
Taylor Wimpey, however, has since seen its share price more than double to sit around 60p as, despite the lack of help from the housing market, the company has managed to drive operational improvements to improve profitability, make disposals to stabilise its balance sheet and regain the confidence of analysts and investors alike.
From a value perspective, we would highlight two points – the first being that, with the housing market offering little assistance, valuation has been a far more important driver of the company’s share price performance than the macroeconomic environment. Taylor Wimpey’s valuation at 25p, let alone 3p, was very modest and it is because the starting point valuation was low that the shares have been able to perform strongly despite the lack of a tailwind from house prices or sales numbers.
The story also illustrates how investors are often reluctant to buy shares in a company until all its problems appear to have been solved – by which point, of course, much of the money-making opportunity will have been lost. That can, quite literally, be a high price to pay for certainty and peace of mind and is a feature of the stock market that value investors could exploit to their advantage.