Nick Train has halved his stake in Pearson in a sign the star manager may finally be running out of patience with the beleaguered academic publisher.
Train (pictured) had been its biggest backer, owning 9.9% of the company via his eponymous fund boutique Lindsell Train. RNS filings show that on 21 January he sliced his position to 4.9%.
Lindsell Train would not comment on why it decided to chop the holding.
The dramatic divestment is a bold move for Train who has built his career buying and holding a concentrated portfolio of stocks for the long haul.
Pearson falls short of Train ‘digital winners’
Chief executive Andy Bird’s efforts to revamp the company around a Netflix-style digital subscription model, which gives students access to its library of e-books for a monthly fee, have failed to reinvigorate Pearson’s share price. In 2021, the value of the business plunged by 11% and its current share price of 615p is down 70% from its £20.72 peak in 2000.
Train admitted as much when writing in the interim results for the Lindsell Train Investment Trust (LTIT) last month.
While other portfolio holdings London Stock Exchange, Nintendo, Paypal and Relx have seen their intellectual property become even more valuable in the digital era, Train said this was not true for Pearson.
“We had hoped by now Pearson would have qualified for credible status in this group of digital winners, but its share price signals scepticism about its ability to ever harness the undoubted IP it owns,” he said.
Pearson made up less than 0.5% of LTIT by the end of September 2021, while Train’s second trust, Finsbury Growth & Income, had a 0.7% weighting.
Goldman Sachs resumes ‘buy’ rating on Pearson
Train’s divestment could also be motivated by a desire to capitalise on Pearson’s recent share price gains, at a time when he believes the undervalued UK market is rife with investment opportunities.
Last Wednesday the company’s shares shot up 5% after it upgraded its annual profit guidance. It now expects sales for the full year to rise 8% and adjusted operating profit of £385m, higher than analysts’ forecast of £375m.
Following the announcement, Goldman Sachs resumed its ‘buy’ rating on Pearson and added the stock to its “conviction list,” arguing investors are severely underestimating the growth potential of its digital business, “attractive” assessments and qualifications division and M&A prospects given its strong balance sheet.
“We believe Pearson is at a pivotal moment as the headwinds from US Higher Education are bottoming out whilst the company benefits from positive global EdTech trends with the opportunity to deploy its balance sheet,” it said in an analyst note.
“We expect the division to return to organic revenue growth from 2022 and then accelerate (4.6% 2022-25E CAGR) following a period of decline across 2010-20.”
Goldman Sachs assigned the stock a 12-month price target of 896p, implying a 50% upside on its share price.