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Train rues 'galling' losses on Pearson and Burberry
Finsbury Growth & Income manager Nick Train hopes Pearson can weather transition to digital, but isn't too worried about Burberry.
Nick Train, manager of the Finsbury Growth & Income (FGT ) investment trust, is searching for reassurance that Pearson (PSON) can weather the transition to digital publishing after a torrid year for the educational publisher.
Shares in Pearson lost a third of their value last year after the company warned that lower enrolments at some colleges in the US would hit profits, but Train said investors were worried about more fundamental problems with the business.
'We suspect investors don't really care about the cyclicality of student enrolments in the US education market,' he said in his latest update for investors in the trust.
'It's more the existential threat of digital disintermediation of its text book publishing revenues that bothers them and, to a degree, us. Print is still 38% of Pearson's business and everyone wants reassurance that the intellectual property here can either be protected or transferred to digital.'
Pearson was one of four stocks held by the trust that lost 10% or more last year. Luxury goods maker Burberry (BRBY) lost a quarter of its value, software company Fidessa (FDSA) dropped 13% and Daily Mail (DMGOa) was down by the same amount.
'All high conviction holdings and all, therefore, galling for me,' said Train. Burberry was hit by the troubles in China, given its high levels of business in the country, but another holding with heavy Asian exposure, Remy Cointreau (RCOP.PA), rallied since Train bought the stock in September.
'We caught a bounce in the latter, after a weak summer, but can't find the bottom in Burberry, as we continue to add to the holding into falling prices. Rare and wonderful brands - we'll be fine in this pair given time,' he said.
Shares in the trust rose 12.4% over 2015, with the net asset value up 11.7%, beating the 1% return of the FTSE All-Share with dividends reinvested.
Performance was boosted by online stockbroker Hargreaves Lansdown (HRGV), up 53% over the year, soft drinks maker Dr Pepper (DPS.N), which rose 41%, food group Kraft (KHNZ.F), 36% higher, and accountancy software provider Sage (SGE), which rose 33%.
'Technology was a major influence - good and bad and I expect that to be increasingly the case over coming years,' said Train.
'Amongst the winners, for example, Sage was a standout as it persuaded investors it has devised a credible strategy for cloud and mobile accountancy software services. Even a modest acceleration in Sage's forecast revenue growth has been enough to deliver a marked price-earnings ratio rerating.'
Technology also helped to power a really in Hargreaves Lansdown's shares, he argued. 'Ostensibly Hargreaves' great year is hard to justify,' said Train.
'You would think it would perform as a proxy for world capital markets or UK savings flows and 2015 was not a great year for either. However, look at it as a tech "platform" business, with the probability that increasing amounts and variety of transactions will take place on the platform - and you can see why the shares did well.'
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- Pearson PLC (PSON.L)
- Burberry Group PLC (BRBY.L)
- Fidessa Group PLC (FDSA.L)
- Daily Mail and General Trust PLC (DMGOa.L)
- Hargreaves Lansdown PLC (HRGV.L)
- Sage Group PLC (SGE.L)
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by Gavin Lumsden on Jun 29, 2016 at 15:23