In the writing test that I submitted when I joined Stockopedia, I wrote about my intense dislike for international textbook company Pearson (LON:PSON). “There is no reason,” I said, “why every announcement from the group irritates me to the point that I dismiss it.” The purpose of that article was to highlight the dangers of basic human behaviours when it comes to investing and to explain why biases like this play a strong role in the momentum effect. Since I wrote it, Pearson’s share price has risen almost 25%.
My prejudice against Pearson probably stems from the fact that I joined the Financial Times while the company was in the process of selling the newspaper and my first week was dominated by discussions of industrial action from the journalists. Then-chief executive John Fallon was widely criticised for his decision to sell what were then deemed the highest quality parts of Pearson: in addition to the FT, he was responsible for the sale of the company’s profitable stakes in The Economist magazine and publisher Penguin Random House. In 2015 and 2016 the company was loss-making at the operating level with no clear plans to make use of the considerable cash inflows from the various business sales.
But that was six years ago and since then the company has completed its sale of the FT and many other ancillary businesses, doubled down on its focus on learning materials and appointed an almost entirely new board and executive management team. Perhaps it is time to hang up my hang ups?
Company Profile: Background
In 1844 Samuel Pearson founded an engineering and construction company in his name. For 80 years, three generations of Pearsons oversaw major building projects while turning their business into one of the world’s largest construction companies. But the future of the company was in the media. Throughout the 1950s and 60s management acquired various newspaper, television and production companies before making their first move into education with the acquisition of Pitman Publishing in 1985.
By the 2010s, with Fallon at the helm, growth opportunities were increasingly unreliable and so in 2013, after warning of weaker than expected earnings, management announced plans to restructure the business and focus on education. The changes involved decoupling Penguin Random House into a separate arm which would eventually be put up for sale and creating three clearly defined lines of business: School, Higher Education and…
