THE INVESTMENT COLUMN : Pearson's tough transition
The pessimists dwell on the Pearson of today, which clearly has its problems. An uneven first-half performance was largely expected, following profit downgrades in July on fears of poor results in educational publishing and mounting restructuring costs. But a 27 per cent profits decline was none the less disappointing.
To be fair, there were bright spots along the way. Entertainment looked healthier, thanks to two months' contribution from Grundy Worldwide, the TV production company bought earlier this year for a whopping pounds 175m, and a steady if unspectacular contribution from Thames Television. But the biggest fillip of all came from BSkyB, the cable and satellite broadcaster that has finally come good.
Strange then that Pearson is selling its 9.7 per cent stake in BSkyB, which is worth about pounds 590m at last night's prices. On past form, it is not clear that the proceeds will be more profitably invested elsewhere and investors will have to wait to see the wisdom or otherwise of giving up a share of Britain's most profitable television operation for, say, the equivalent of four more Grundys.
The FT group, meanwhile, managed an operating profit of pounds 31.3m, despite a one-off hit of almost pounds 7m to cover the costs of closing the company's East India Dock print works. In the period, the group bought IDC, the financial information services company, which looks like an excellent fit with FT Extel.
Pearson, with its books, theme parks, and broadcasting assets, is heavily weighted towards the second half, and prospects may improve, especially if the trading climate in the US proves more benign than some fear. By just how much, however, is the key question.
The company itself professes not to know what the trends are in key businesses. Analysts are calling for pre-tax profits for the year of between pounds 265m and pounds 280m, quite a range for a company as closely watched as Pearson. For 1996, the range narrows, with most calling for about pounds 328m.
The challenge facing Pearson is to transform itself into a high-margin provider of high-quality information and entertainment, the only way it will thrive in a hotly contested market. Reed and Thomson, two similar companies, look better placed to achieve that goal and on last night's closing price of 618p, Pearson's shares look pretty fully priced on a demanding forward price/earnings ratio of 17.
Everything goes wrong for Pifco
Pifco's electric fans walk out the door in this weather, which is just as well as the small appliance maker has had precious little good news in the past year. Technical problems on new products, slumping consumer confidence and the 11th- hour collapse of acquisition talks in France combined to sour the 12 months to April.
Profits up just 2 per cent to pounds 2.7m from sales of pounds 37.4m had been pretty well discounted by the shares, which have been in retreat since last September. Having peaked at 343p, the 'A' shares slipped a further 8p yesterday to close at 255p.
That is a fair reflection of a year in which almost everything went wrong. A TV advertising campaign failed to drum up a material increase in sales for a Carmen hairdryer, Russell Hobbs suffered from tough markets and an inability to get new products out, while pounds 800,000 was spent on fees during the abortive attempt to buy Babyliss of France, a hairdryer maker.
The chairman, Michael Webber, reckons all that is out of the way now, although he admits trading in the four months since May has been slow. The company is still keen to make an acquisition and promises that when the next deal comes along it really will enfranchise its non-voting shares.
Looking ahead, things appear a bit brighter. The company maintained margins despite rising packaging costs, thanks to tight cost controls. It has cash in the bank, pays little tax thanks to a mountain of previous Russell Hobbs losses, and has a well thought out marketing strategy.
Pifco profits forecasts have a habit of creeping back during the year so estimates of pounds 3.1m to April 1996 should be treated cautiously. If achieved, the shares trade on a prospective p/e of 15. High enough.
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