GG now spends rainy days trading equities and currencies. He likes to use a combination of technical analysis and news flow to make trading decisions.
Pearson and CRH
Whilst most eyes will be focused on the last of the banking sector results from HSBC on Monday, I thought I would turn aside from the sector and look at media and publishing group Pearson, which also publishes its results the same day.
There are 3 main parts to the Pearson empire. The Financial Times Group publishes the famous pink paper (not the Gay & Lesbian Times) and other business information & financial magazines like (yes it truly exists) ‘The Banker’. Pearson Education supplies textbooks, testing programmes and multi-media learning tools which help ‘to educate over 100 million people worldwide’-mainly in US schools. Finally, the Penguin Group is home to several iconic book brands like Puffin, Ladybird and Dorling Kindersley. The author list includes Jamie Oliver (well somebody has to have him) and more recently, Alan ‘irrational exuberance’ Greenspan, the ex-chairman of the US Federal Reserve. Perhaps somewhat surprisingly, Greenspan’s memoir ‘The Age of Turbulence’ has become a best seller, with sales well over a million copies!
Pearson issued a trading update in January which was confident of producing ‘record profits for 2007′-despite the significant weakening in the US dollar over the year. Pearson generates about 66% of its sales in dollars, so gets stuffed by translation effects if the $ weakens. Analysts are looking for £405m and earnings per share of about 45.5p. Key to the stock will be the outlook for US education spending (often budgets are cut early in a new presidential term, let alone in an economic downturn) and how weak the US dollar gets.
International building materials group CRH reports its results on Tuesday. CRH has an unblemished record of 14 years of profit and earnings per share growth and it looks as if 2007 will continue the run.
Although the group has significant exposure to the US construction sector, a sizable proportion of it is to public works projects like highway construction and maintenance, so the group may not have felt the full force of the slowdown in the housing sector. Poor weather and rising energy prices will however have had an adverse impact on US profitability.
The Group has over recent years spent a lot of money expanding into central and Eastern Europe, especially in the FSU countries. Thankfully, this strategy seems to be paying off as these markets appear relatively buoyant compared with the US.
Overall, group profits are expected to be close to €1.9bn, bringing with it the 24th consecutive year of dividend increases.
For 2008 however, the outlook may be a tough one particularly in the US, with state and local government infrastructure budgets under increasing pressure and with little sign of an upturn in the housing market. Record lows for the US dollar against the € and higher funding costs (a lot of the growth story in CRH is acquisition/debt funded) won’t help either.
March 3rd, 2008 at 9:50 am
Pearson posted an above estimate set of profits; looks like £468m and earnings per share of 46.7p, both well ahead of guidance given previously.
Some disappointment that the company has trimmed its revenue growth outlook for 2008 in some areas (schools ‘low single digit’ after 6% in 2007, professional publishing ditto after 9% in 2007).
Given Pearson makes almost 90% of its profits in H2 then perhaps a degree of caution is merited with the US economic situation unclear.
Shares down 22p or about 3%
March 4th, 2008 at 9:51 am
As expected, CRH profits came in much in line with estimates at €1904m, up 19% on last year and bring ing with it 15 years of consecutive growth
The Central and Eastern Europe materials division was the star, where profits rose by 30% on a l-f-l basis; Polish cement volumes were 17% higher.
The US operations put in an OK performance; overall profits increased by €27m to €980m driven by Materials, the other divisions were impacted by the US slowdown.
Share price currently up about €0.3, I feel that forecasts for 2008 might have to be nudged down a little.
March 23rd, 2008 at 9:51 am
Although CRH does have large exposure to the US market, its recent acquisitions position it for growth in emerging markets.