It’s a stock that has forced Nick Train to apologise to shareholders twice, but the Citywire AA-rated manager is hoping that Pearson (PSON) could be laying the groundwork for long-term profitable growth.
In two successive annual general meetings for shareholders in the Finsbury Growth & Income trust, Train apologised for his investment in Pearson, after the shares dived from a peak of nearly £15 in 2015 to 589p by the start of 2017.
Since late last year they have started to recover, however, and were today trading at 928p.
Train highlighted the stock in his latest update to investors in his Lindsell Train UK Equity fund, pointing to the shares' 7% jump in November and 30% rally in 2018.
'We cannot and must not think that this move or even the 30% gain in Pearson’s shares so far in 2018 demonstrate either that we have been right to retain our investment in the company, nor that the bull case is by any means proven. It is not,' he said.
‘But it is for sure that today it sounds less absurd than it would have done a year ago to claim Pearson is having early success in propagating digital versions of its intellectual property and that this could result in a sustained period of profitable growth.'
The fund has also recently benefited from returns from defensive stocks, led by snack company Mondelez (MDLZ.O), which was also up 7% in November. Information and analytics group Relx (REL), drinks company Diageo (DGE), and consumer goods giant Unilever (ULVR) also registered ‘nice gains’.
Train (pictured) said ‘perhaps most’ of the rally in these could be a ‘response to the perturbation that global equity investors evidently feel’ and their flight into more dependable name stocks.
He added that the rally coincided with the fall in oil price, which lost over 20% in November, although it has since recovered some ground.
'I long ago learned not to extrapolate anything from swings in the oil market, but it is undeniable that lower energy costs are good for global consumers and what is good for consumers is probably also good for consumer goods companies,' he said.
Train hailed Diageo's announcement the sale of 19 secondary US brands at a price that while dilutive in the first year ‘will increase the profit margin and growth rate of the company over time’.
The company has also benefited from the fashion for gin and Fevertree’s hand in revamping the mixer market, as Diageo gin sales were up 14% last year and its 190-year-old Tanquerey brand is ‘both bigger and more valuable today than it has ever been’.
The fund has returned 69.3% over a five-year period versus 29.2% for the FTSE All Share. Since the turn of the year it is one of the few UK-focused funds to have delivered a positive return, up 1.9% to the end of November versus a 6% fall for the FTSE All-Share.