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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.

 
Train rues 'galling' losses on Pearson and 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.'

7 comments so far. Why not have your say?

martin hargan

Jan 18, 2016 at 17:30

Not sure about the beard..but if G Linaker has one it may be more sign of probity in an excellen manager.

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Andy W

Jan 18, 2016 at 17:44

Sean Bean

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michael tarlowski/white eagle

Jan 18, 2016 at 22:01

mr train will get what he deserves in continually backing the management at pearson who are clearly inept

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J Thomas

Jan 18, 2016 at 22:10

Yes, I like your share selections Mr Train. Your beard, not so much. Being clean shaven myself I distrust men (and women) with beards, as all the trouble in the world seems to originate from those who cloak themselves in one.

Not yourself I should add, however do yourself a favour and shave it off.

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Gareth Harries

Jan 19, 2016 at 00:51

Interesting story

Mr. Train is one of the lauded managers in the sector irrespective of his beard and he has taken one of his first big hits.

I am a holder for a friends children on the basis of his previous success, but I do have to question his holding onto certain stocks.

If I as a non-professional investor could recognise that selling out of most of my Hargreaves Lansdown shares after the roller coaster ride they have had over the last 5 years was a good idea when they hit the highest they had in 5 years towards the end of last year (before the drop again this year), why couldn't he; take the gains, move on, before they dropped again as there was no way to justify the price they had reached, although Harry Nimmo from Standard Life Smaller Companies sold out before they recovered. Yes I may add to my (much reduced) holding when the price reaches a more reasonable level and the way forward on pricing and margin becomes clearer, but I suspect that the margin will come under more pressure and therefore the share price.

As to Pearson as soon as the deal was announced to sell the FT and the price recovered, I sold out half my holding as there was a profit to be made and a great lack of certainty about the future which was not based on any real track record.

As for Burberry I bought in when Angela was running the business and sold out after she left when the share price reached a profitable basis for me to sell out as there did not seem to be such a viable business case going forward with the new CEO, cum main designer. Since the price falls I have bought in again as there seems to be a better case at current share price levels.

It seems to me that the mystique has been somewhat pricked and there are better Equity Income funds to select that are based on more sustainable selection processes.

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dlp6666

Jan 21, 2016 at 16:46

Pearson up 17% today on restructuring news - a sign of better things to come (for it and Train)?

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jolyon kay

Jan 24, 2016 at 11:01

What's wrong with a beard?

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