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Housebuilders in focus

Tomorrow sees UK housebuilders, Persimmon and Taylor Wimpy, release a trading update. Investors will be keenly awaiting the numbers to assess the outlook for the shares.

Chris Beauchamp ChrisB_IG
Chief Market Analyst, London

Publication date : 2017-04-26T14:57:07+0100

Houses

Source: Bloomberg

Taylor Wimpey suffered in the wake of the Brexit vote, but its shares have recovered since then. March results showed that the firm had a good year overall in 2016, with a 17% rise in revenue, and profits up by over a fifth. A 7% yield and a still cheap valuation at 10 times forward earnings suggest that Taylor Wimpey offers impressive returns over the longer term.

The company has been rising steadily since the November low, and now looks set to head to 211p, the 2016 high. There are no signs that the trend is at an end, with the progression of higher lows and higher highs going back to November. It would need a definitive move below 190p to begin to suggest a more bearish outlook.

Taylor Wimpey chart

Taylor Wimpey chart

Taylor Wimpey chart

Meanwhile, Persimmon has also done well, with 2016 seeing the firm reach the half-way point in its 10-year strategic turnaround plan. Underlying profits rose by 23%, with revenues up by 8%. Both firms benefit from the lack of supply in the housing market, which means that margins remain strong. Demand has not yet abated, thanks to various help to buy schemes from the government. Like Taylor Wimpey, Persimmon boasts a healthy dividend yield and an undemanding forward PE of 10.

The technical picture for Persimmon is similar to Taylor Wimpey, but for the former we have seen all-time highs in the past month. A new breakout above £23.02 would be bullish, while a retracement could see support come in at £22.55 and then £21.58.

Persimmon chart

Persimmon chart

Persimmon chart

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