Pearson shares hit ten year lows as CFO departs

Pearson shares hit ten year lows as CFO departs

It’s hard to believe that less than five years ago Pearson shares were trading at all-time highs with the company owning a wide range of businesses from the FT, to book publishers, as well as its education business in the US.

In all that time, under the stewardship of CEO John Fallon, and the sale of the FT in 2015 to Nikkei for £844m, the share price has pretty much gone one way, from record highs in March that year, to over 60% lower today, which suggests that while the Pearson management team may have had a strategy for the business, investors were less than convinced, and judging by this morning’s reaction to yet another profits warning, remain to be so.

The departure of CFO Coram Williams, doesn’t exactly come across as a vote of confidence either, coming so soon after the decision by CEO John Fallon to step aside last month.

In December last year, the company announced the latest in a long line of asset sales, this time selling the remaining 25% of its stake in Penguin Random House to Bertelsmann for £530m, thus completing a process which began back in January 2017, when they announced their intention to sell their 47% stake.

The first 22% was sold in the summer of 2017, and it would appear that management decided the time was right to offload the remaining stake, in an attempt to try and stem the bleeding, with the proceeds used to buy back some of the shares.

Over the same period of time the company has also sold off a range of other assets in what is seen to be an attempt to cement a niche as the world’s leading digital education company.

The loss of thousands of jobs over the past few years, along with the sale of a range of businesses including the K12 US school textbook business in the early part of last year, still hasn’t been enough to turn the business around and yet another profit warning this morning has seen the shares fall even further, to their lowest levels since 2009.

The decline in the share price finally caught up with CEO John Fallon last month as he announced his departure, after nearly seven years in charge, the only surprise being that he lasted so long.

This morning another name was added to that list as Coram Williams, the company’s CFO also announced that he was stepping aside as well, after over 4 years in the role, to be replaced by his deputy Sally Johnson.

It’s hard to imagine how shareholders must be feeling right now, having been assured by senior management that they had a vision for the business going forward, that the two architects of the business restructuring, as well as the share price declines of the last five years, have now decided to walk away from the wreckage.

Mr Fallon can reassure until he is blue in the face that the company is a simpler, more efficient company than it was a few years ago, and that it is better placed to invest in digital innovation and platform based products, but that is likely to be cold comfort to shareholders, who have seen the value of their holdings more than halve.

With a £350m share buyback due to start today from the remaining proceeds of the Bertelsmann share sale, his argument might have more weight if he invested the proceeds of that in the business rather than buying back the company’s shares.

Hopefully the new management will do a better job of steering the company in the years ahead than the previous incumbents.

Disclaimer: CMC Markets is an order execution-only service. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

Sign up for market update emails