Persistent “challenges and uncertainty” in the North American higher education courseware market have forced Pearson to accelerate its transition to digital products and undergo major portfolio restructuring, including the sale of its stake in Penguin Random House.
Net revenues in its North American higher education textbook business declined by 30%, pushing the group’s total revenues down 8% in underlying terms in 2016.
Although the British publishing house has stated it expects to meet its 2016 profit guidance, persistently weak sales have taken their toll on the group’s guidance for the new year. The firm now expects to deliver operating profit between £570m to £630m in 2017.
Pearson also told investors it would have to rebase its dividend from 2017 onwards and had withdrawn its operating profit goal for 2018.
The firm’s latest trading update is a blow to loyal devotees of the stock, like Nick Train of Lindsell Train and Jupiter Asset Management’s Ben Whitmore, who have backed the publisher despite some major bumps in the road during the last several years.
Whitmore, for one, has Pearson among the top ten holdings of both the Jupiter Special Situations (3.7%) and Jupiter Income Trust (3.9%) vehicles he manages, according to FE Analytics.
And the stock has been a staple of Train’s Finsbury Growth and Income Trust for some time and also appears in his Lindsell Train UK Equity and Global Equity funds. Though, Train has lamented in the past Pearson’s “mixed success” in harnessing technology to revamp its business platform.
Pearson also ranks among the top constituents of the Majedie UK Income fund, overseen by Chris Reid and Yuri Khodjamirian (4.72% at 30 November 2016).
Head of private investment management at Thomas Miller Investment, Andrew Herberts, admits he considered investing in Pearson several years ago but was “not ever entirely happy with it as a business.
“The reason we didn’t go for it was that we were not entirely convinced by its strategy of disintermediation via the internet,” he elaborated. “It felt vulnerable. However, it is a company that has looked cheap for a while and comes up well on value screens.”
