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Taylor Wimpey fundraising flop

Created:
2 July 2008
Written by:
Jonas Crosland

Shares in Taylor Wimpey crashed 58 per cent to just 28p after the troubled housebuilder failed to secure a deal to raise new funds. Without a cash injection, there is a real risk that the group will default on the terms of its £1.9bn credit line.

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The shares were already on the ropes after the company warned earlier this week that it would write off £660m owing to falling land values in the UK, US and Spain. Today, more details of recent trading emerged, and they did not make pretty reading:

• UK reservations fell 45 per cent in the first half of the year, completions were down a third

• Average UK cancellation rates rose to 29 per cent in the period, from 19 per cent a year ago

• The order book is down by a third, and within that, average selling prices are 8 per cent lower and margins are five per cent lower

• Further land bank writedowns may be necessary.

With all this going on, there'll be no interim dividend and almost certainly, no final one either. Finance director Peter Johnson will leave at the end of the year.

The only bright spot, if it can be called that, was the US. Sales, prices and margins were all lower in the first half than in the same period last year. But unsold stock levels have also been reduced and the cancellation rate has improved significantly compared to the second half of 2007.

Taylor Wimpey's woes prompted a fresh round of gnashing and wailing among stock brokers. In a research note on the sector, investment bank Cazenove said "the failure to raise fresh equity is a blow for the group and the sector. Trading conditions have deteriorated at an alarming rate and we will be reviewing our profit and dividend estimates across the sector."

Alastair Stewart of Dresdner Kleinwort, who caused a stir a few weeks ago when he said that Barratt Developments shares "were not worth buying at any price", said: "We believe there is a very real danger that Britain's biggest housebuilder by volume faces collapse when covenants are tested in February."

More share tips and updates...

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SHARE TIP UPDATE:

Sell

Taylor Wimpey shares are now down 77 per cent from our sell advice (123p, 23 May 2008) and without a capital injection, the future looks uncertain a best. At 28p, they remain a sell.

■ Taylor Wimpey bonds are also down sharply, and currently yield 20 per cent to maturity. Are they worth buying? Find out in tomorrow's Bond of the Week!

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