The Investment Column: Pearson proves doubters wrong

THOSE WHO questioned Marjorie Scardino's ability when she took over as chief executive of Pearson at the end of 1996 have been proved badly wrong. Under her tenure shares in the information and entertainment conglomerate have gained more than a quarter in value. And that's without resorting to the kind of drastic surgery City opinion felt that Pearson needed when she took the helm.

Ms Scardino has made some smart moves. She's pumped pounds 100m into the Financial Times to boost sales in the US and continental Europe, and added to Pearson's television assets by splashing out pounds 250m on All American, maker of Baywatch and The Price is Right. However, she's also had to weather a huge false accounting scam at Penguin.

Meanwhile, disposals have been limited. Though welcome, the sale of Mindscape, the disastrous computer games firm which effectively ended previous chief executive Frank Barlow's tenure, was hardly a tough decision. A few minority shareholdings have been sold, while a few more will be disposed of soon.

Despite Ms Scardino's silence yesterday, the for sale sign also appears to have been hoisted over computer magazine publisher Future. But the suggestion yesterday that she might for now be willing to hang on to stakes in the Lazards investment houses, as well as Madame Tussauds, was enough to wipe 16p off the shares, dragging them down to 960p.

A more important question is what Pearson might be thinking of buying. The Simon & Schuster publishing assets, which are currently being auctioned, are clearly on its wish list. In television, meanwhile, experts believe Pearson needs distribution capacity to go with its content, so it may be in the market for minority stakes in television channels in, say, continental Europe.

Will all this be enough to achieve Ms Scardino's aim of producing double- digit earnings growth and doubling the size of the business in five years? That remains to be seen. The 15 per cent increase in operating profits to pounds 323m reported yesterday was a good start, but will be harder to repeat in future years.

The most important point about Pearson, however, is that without a significant exposure to digital television or new media, its shares rely less on hope than many of its peers in the media sector. Even so, on a multiple of 22 times forecast 1998 earnings, the shares are high enough for now.