So another British institution falls into foreign ownership with the sale of the Financial Times (FT) for £844 million (c.US$1.3bn) cash by
It’s always amazing how some people - or rather companies - will pay top dollar for a quality newspaper. For a trophy asset like the FT or The Wall Street Journal the consideration paid may well be considered a ridiculous. And, then the acquirers put even more money in just because the desire is to own an influential business publication.
This deal was certainly a pretty rich price even if one considers that the FT is a quality brand name and commands a unique position in the financial information sector. The FT Group certainly has some high quality titles in its stable like The Banker and The Investors Chronicle.
At the FT, total circulation across print and digital increased by over 30% in the last five years to 737,000, with digital circulation growing to account for 70% of the total - and mobile driving almost half of all that traffic. Today content and services account for the majority of revenues.
Among the analyst community, Nomura suggested it was a “high price and reflects trophy asset status for the FT” while Numis Securities media analyst and director Gareth Davies remarked that the sale was at a “good price”. The competitive bidding between and Nikkei, whose flagship daily has around 3m subscribers, and German media group
But just a day after the deal Pearson announced a widened pre-tax loss of £115m for the first half of 2015 - up from £36m a year earlier. An increase in sales to £2.16bn from £2.05bn was offset by greater cost of goods sold and operating expenses. One could be forgiven for thinking a financial hole needed plugging even if they intended to focus on their education business.
The company revealed adjusted earnings per share (EPS) - excluding the sales of its Mergermarket business (to BC Partners for £382m in November 2013) of 4.4 pence - versus 4.7 pence a year before. And, for 2014 as a whole the company reported dividends of 51 pence, with analysts covering the stock having recently been expecting dividends of 55 pence for the upcoming fiscal year.
Despite the widening loss Pearson proposed an interim dividend of 18p - up 1p (5.9%) from a year ago. In addition they had an impairment charge of £70m related to the PowerSchool sale. Still, it should be pointed out Pearson, the world’s biggest education company by revenue with some 40,000 employees in over 70 countries, generates most of its sales in the second half of the year due to the start of the school year in the US and Europe.
Then within days of its FT disposal it was announced that Pearson had plans to sell its 50% stake in The Economist. Sounds like selling the family silver one might think, just as with the £450m sale in 2011 of its 50% stake in FTSE International to the London Stock Exchange Group.
Pearson shares, which were trading at £11.61 (c.US$18.14) each in the afternoon session in London this Tuesday, are down £3.56 (c.23.5%) from the 52-week high of £15.17 this March but £0.69 (6.3%) above the 52-week low of £10.92.
The stock is currently trading around the same level as it was back in early January this year and hasn’t exactly been a dramatic mover over most of 2014. Year to date the stock price is barely changed at -1.28%.
In New York, Pearson shares ((American Depositary Shares (ADS)) were trading this Tuesday morning slightly up at US$18.10 (+18 US cents), which is US$0.90 cents above its 52-week low and almost 20% off the 52-week high of US$22.47.
Among 24 equity analysts recommendations on Pearson, four rated the stock a ‘Buy’ (down from 5 one month before) as of 28 July 2015, five an ‘Outperform’ (down from six a month earlier), nine a ‘Hold’ (up one from a month ago), two an ‘Underperform’ and four a ‘Sell’ (up one from a month ago).
The stock was within close range of six-month lows this Monday (27 July) declining 5.2%. It was in fact the worst performing FTSE 100 stock in percentage terms following several brokers cutting their price targets on the company.
It came as three brokers - Barclays, Nomura and Westhouse - lowered their target price on the stock to £12.45 (from £12.90), £12.80 (from £14.00) and 1131p (from £11.79), respectively, and referred to limited 2016 growth for the company.
Brokerages questioned the valuation in the wake of comments made along with Pearson’s first half results announced on Friday 24 July, which indicate that the environment in its key US market is still uncertain.
The highest of these three target prices is around 10% higher than the current share price, while the lowest target would equate to decline of 2.6%. In terms of the share price forecasts overall, of 21 analysts offering 12-month price targets at the end of last week, the median target was £13.75 (a variance of 17% to the closing share price on 28 July), with a high estimate of £17 and a low estimate of £8.00. So, a bit of variance there.
At a press conference following the FT acquisition, Tsuneo Kita, Nikkei chairman, stressed that the Japanese media giant felt a great responsibility to grow and expand the Financial Times brand. And, importantly he added that the FT would not change as a result of the acquisition. Let’s also hope the FT will follow the vision of Brendan Bracken, founder of the modern FT, of a crusading financial advocate.
As for Pearson shares one might consider they are a buy at current levels in the mid to long term. That said, the company’s profit margin of 3.31% (Trailing Twelve Months (TTM) as of 30 June 2015), operating margin of 7.12% and return on equity of 3.44% is hardly stratospheric. Hopefully the second half of 2015 proves more rewarding for the share price.
