We are used to seeing publishing giants Pearson and Future heading in opposite directions but usually, it is the former on the down escalator and the latter heading up.
Not this year.
Future has lost two-thirds of its value in 2022 while Pearson has risen 53%.
There has been a glitch in the Matrix.
Both companies have a history of paying – some would say overpaying – their chief executives.
Pearson’s Andy Bird received a “golden hello” worth £7.2mln when he joined the company in 2020 and is on an annual base salary of US$1.25mln, fixed – poor soul – until his first pay review in 2023.
A salary of US$1.25mln is clearly not enough to pay a chap’s accommodation costs, so Pearson’s remuneration committee also lobbed him US$185,000 to offset the costs of renting an apartment in New York (and you thought London rents were high).
No stranger to shareholder revolts against executive pay, Pearson suffered another uprising from disgruntled investors in 2020 when a third of shareholders voted against his remuneration package.
Future faced its own shareholder revolt in 2021, when two-fifths of those who voted against a bonus scheme that gave scope for chief executive Zillah Byng-Thorne to earn up to £40mln.
In both cases, the company acknowledged disgruntlement among shareholders and in both cases it seems the remuneration committees continued to ignore those angry investors.
So much for the politics of envy. Leadership clearly matters and if one is paying top dollar for it one clear wants leadership of the Ben Stokes quality rather than the Liz Truss variety.
In the case of Zillah Byng-Thorne (ZB-T) at Future, she has clearly delivered in spades. At Pearson? Nyaaaa; not so much.
After joining Future PLC (LSE:FUTR) as chief financial officer in 2013, ZB-T took the helm in 2014, when the share price was less than 10p. At the start of this year, the shares were worth more than £37 but they are now trading below £13.
What’s gone wrong?
The most obvious thing is Byng-Thorne’s decision to quit the firm at the end of next year. Since then she has raised £815,775 by selling shares awarded from bonus awards, which hardly speaks of someone who is confident in the future of the company.
In November, the company issued a sparkling set of results, bragging of its eighth consecutive year of record sales and profits but the market took fright at a warning that 2023 would see only “modest profit growth”.
German bank Berenberg reckons the stock is undervalued but has nevertheless cut its target price to 2,600p from 3,250p.
It believes Future will continue to “operationally outperform” its sector peers because it has a better platform.
Broker JP Morgan has an ‘overweight’ rating and a 2,500p target price.
If the teenaged scribblers at Berenberg and JP Morgan are right, maybe the concerns of ZB-T’s departure have been overdone.
After all, apart from his trademark black polo-neck jumpers, is anyone really missing Steve Jobs at Apple? Some companies have such a strong market position that only a Liz Truss-style appointment could cripple them.
As for Pearson, it has been a stock market dog for years and its well-paid management appeared to be barking up the wrong tree.
Having disposed of some of its best-known assets, such as the Financial Times and The Economist (in 2015) and Penguin Random House (in 2020), the publishing group’s handsomely remunerated executive team put all of its eggs in the education basket.
The COVID outbreak played merry hell with academic activities in 2020 and 2021, which did Pearson few favours, and emphasised that the group’s move away from physical textbooks and journals to the digital marketplace needed to happen even more quickly than management has envisaged.
The FTSE 100 group has invested heavily in its digital transformation but the benefits (ie profits) have been slow to come through, but this year the market started to sit up and take notice – which does not often happen in the typical classroom.
US private equity firm Apollo was keen to buy the company in the first quarter of this year, offering 884p a share, but Pearson’s management felt confident enough to reject that bid.
Far from collapsing after the bid interest disappeared, the shares entered the Christmas period at 937.6p, up 53%,
In October, the company reiterated that it is on track to meet full-year expectations after a good performance from its online English learning activities in the first nine months of the year.
Chief executive Andy Bird said the group is making good progress on its "digital learning ecosystem" strategy.
Barclays, in its assessment of the third-quarter results, noted that the online education specialist beat its own forecasts of organic growth, 7% vs 4%, which makes a change from its history of profit warnings and underperformance.
Analysts often talk of Pearson’s business being resilient, with around two-fifths of its revenues are either non-discretionary or derived from longer-term contracts with government institutions.
It’s doubtful the company will do what Future did – increasing the share price twelve-hundredfold in less than a decade – but its defensive qualities suggest that after taking one step forward in 2022 it might not be a case (for once) of two steps back the following year.