Andy Bird has his work cut out at Pearson (Miles Costello writes). The former Walt Disney executive, who took charge of the academic publisher last month, must address a painfully slow recovery at the group’s North American courseware business against the backdrop of the disruption caused by the coronavirus pandemic.
He has at least to maintain or more likely accelerate the group’s reinvention as a digital publisher. He has to mollify a sizeable proportion of Pearson’s shareholders, almost a third of whom took exception to his $9 million “golden hello”. And he has to do it all as the shares, down a third over the past two years, labour under pressure from short-sellers convinced that they have further to fall.
Pearson started life in 1844 as a construction company, moving into publishing just over a century later. It employs more than 22,500 staff in 70 countries and is in the FTSE 100, although its £4.6 billion market value makes it a low-ranking constituent. As well as publishing textbooks, it also operates “virtual” academies and schools and runs training courses for professional and other qualifications, such as driving.
Part of Pearson’s problem seems to be its slowness to adapt. It was caught on the hop by the shift among American college students into renting books rather than buying them and has not been able to respond swiftly. While it is wedded to the idea of being a digital publisher and a provider of online courses, the actual process of it doing so appears to lack a little pep. The question for analysts and investors is whether Mr Bird has what it takes to change that.
The forced closure of college campuses, not only in the United States, has hit Pearson hard. Sales at the North American courseware division fell by 21 per cent to £375 million during the first half and were down by 25 per cent to £404 million at the international unit over the same period. The falls continued over the three months to the end of September.
However, the pandemic has dramatically accelerated individuals’ willingness to learn online. Pearson’s global online learning division, which accounts for just over a fifth of revenues, increased sales by 14 per cent over the first nine months of the year, although investment in the digital schools and managing its recruitment processes online has dragged back profitability.
So what is the new boss likely to do? It seems likely that he will increase investment in the transformation of Pearson into a digital-only business, possibly even accelerating the closure of some print titles.
It seems probable that he will push the company further into a subscription model, so that more of its revenues are recurring through monthly payments by academic institutions rather than one-off licences. And it would be no surprise if Mr Bird, 56, was to target consumers directly, rather than using colleges and universities as intermediaries. While a coursebook still would need to be accredited by an academic institution, there is every reason to believe that budding students would be prepared to pay for Pearson courseware to study in their own time.
Based on traditional market metrics, Pearson’s shares are not expensive while not being attractive enough to buy, either. The stock, up 6½p, or 1.1 per cent, at 620¾p, trades at a multiple of about 16.4 times UBS’s forecast earnings for a dividend yield of 2.4 per cent or so. The shares have risen by almost a third since this column advised holding them in May; investors should keep hold of them now as hopefully there is more growth to come.
Advice Hold
Why The background of the new chief executive augurs well for its progress further into digital publishing
WH Smith
Companies in almost every sector are hoping that recent vaccine breakthroughs are a sign of better days to come — none more so than WH Smith, whose travel business has been ravaged by the pandemic (Ashley Armstrong writes).
The retailer has tumbled from an enviable position as an attractive income stock with reliably increasing profits to a business that had to tap its investors for £166 million to shore up its finances and one that announced a £280 million pre-tax loss last week.
WH Smith, which has 1,174 shops in airports and railway stations and 568 high street stores, used to make two thirds of its profits from its travel division, boosted by successful forays overseas, but global Covid-19 restrictions have been a hammer blow, with travel sales slumping by a third. The company’s market capitalisation has halved in value since the start of the year.
Recent announcements by Pfizer and Moderna about vaccine progress gave WH Smith’s shares a much-needed 38 per cent boost, but the rally didn’t last long and yesterday the stock dipped 52p, or 3.5 per cent, to £14.32.
Time seems to be the issue: Carl Cowling, 46, the group’s chief executive, believes that a vaccine will not improve WH Smith’s travel business for at least the next six months, partly because it will take time for it to be distributed; a new note from analysts at RBC suggests that passenger numbers could be depressed for a prolonged period, although it adds that when people have visited an airport store during the pandemic they’ve spent more than they did before.
WH Smith is renowned for managing its store estate to squeeze maximum profit out of every square foot of shop space. It has added more food-to-go options as airlines have cut back on free in-flight meals and now sells high-end headphones, which is boosting average spending well above the traditional magazine, bottle of water and packet of sweets.
The business has enough cash and available finance to weather the storm and once the travel market recovers, it will be well placed to take advantage — but when that will be is anybody’s guess.
Advice Hold
Why Uncertainty about when the travel business will be back on track
