Dame Marjorie’s £700,000 punt sets a poor example to pension planners everywhere. It is little short of irresponsible, from a personal financial point of view, to take such a gamble on the performance of one stock. Retirement income planning, however, is not the only thing on Dame Marjorie’s mind. She is hoping her action will draw attention to what she perceives to be a starkly obvious undervaluation in the price of Pearson shares and will set off a wave of share price accretion.

It might. Dame Marjorie’s gamble is certainly big enough to merit further investigation. Pearson shares give a prospective dividend yield of 4.1 per cent. The stock would rise by 100p if it fell into line with the London market average and offered 3.5 per cent of income. Pearson shares would double in value if the yield fell into line with the 2 per cent average for the FTSE media and entertainment sector.

Pearson’s profitability is better than the headline numbers reported yesterday suggest. The 2003 figures looked weak because a £250 million one-off contract with the US Government, undertaken in 2002 in the wake of the September 11 terrorist attacks to bolster airport security, was missing. Currencies did not help either. But sustained cost-cutting meant that Pearson pushed profits forward in spite of these burdens. Efficiency gains should help Pearson to nudge profits forward in 2004. In 2005, however, US education authorities are due for one of their big years for textbook investment. Pearson’s testing services, thanks to the US’s No Child Left Behind initiative, are also well set.

Pearson’s exposure to cyclical US education investment is disconcerting. There may be companies with more obvious opportunities to increase profits, too. The fact that the Pearson share price is unstretched beside peers leaves some room for advancement. But the bullish case is far from overwhelming. Hold.

Hammerson

THE recent run of pedestrian results from quoted commercial property giants was interrupted yesterday with a sparkling set of numbers posted by Hammerson, the FTSE 250 retail and office developer.

The company reported that the net value of its properties rose 6.9 per cent in 2003, boosted by a 10.6 per cent uplift in the value of its UK shopping centres. The company’s retail parks also produced a stellar performance, advancing 8.7 per cent. The rises, which comfortably cancelled out a 5.9 per cent drop in the value of the company’s office portfolio, provide real proof that the group’s strategy to increase exposure to the retail property market at the expense of more volatile office properties has paid off handsomely.

The group’s largest project, the £550 million redevelopment of the Bull Ring shopping centre in Birmingham, which was built in conjunction with Land Securities and Henderson Global Investors, has generated a profit of more than £50 million for Hammerson alone.

As well as the good performance from its property portfolio, Hammerson has also created excitement with news that it plans to seek a share listing in Paris. The move will allow Hammerson to take advantage of newly created tax-efficient property investment trusts, which exempt companies from paying capital gains and corporation tax on assets in France in return for paying out most of their earnings to investors as dividend income. The move reignited speculation that Hammerson will be one of the beneficiaries if the UK Government introduces similar real estate investment trusts in the UK.

REIT fever undoubtedly helped to propel Hammerson shares to a ten-year high yesterday. However despite the recent surge, they are still trading at a 15 per cent discount to net asset value, slightly more than the sector average.

What is more, the recent passion for property shares shows no sign of abating. The fact that that Hammerson remains one of the best-run companies also commends the stock. Buy.

Exel

LOOK beneath the skin of the annual results reported yesterday by Exel, the FTSE 100 transport and logistics company, and you might be rather troubled. Yes, there is good evidence that its contract logistics arm — which manages big slugs of logistics requirements for firms such as Marks & Spencer — is in fine fettle. Since most of the contracts in this division are signed for between three and five years, Exel’s contract logistics activity also has an encouraging longevity about it.

Exel’s freight management, however, looks much more sickly, and it is tempting to assume that this half of the business will drag the other, more promising half, down. Freight management is more susceptible to competitive pressures. The barriers to entry are lower than on contract logistics and Exel has less command over selling prices. Moreover, demand can ebb and flow remarkably quickly. Freight management profits, meanwhile, also depend on the global economic cycle.

Exel’s weak freight management profits, however, may not send the poor signal that seems apparent at first blush. For one thing the profit weakness is worst in the US. Notably in Asia, but to a lesser extent in Europe, the company has fared much better. Meanwhile, Exel also points out that US profits were weak because it decided not to compete for work being undertaken by rivals at rock bottom prices.

Profits at freight management, in the US and elsewhere, could bounce nicely in response to economic recovery. Hold.

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