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Pearson pushes on with digital strategy

Publisher’s growth hampered by restructuring costs
Pearson pushes on with digital strategy
  • Assessments and qualifications fuel sales growth 
  • Virtual learning still a low-margin business

Pearson (PSON) is famous for heavy textbooks and exam papers. However, the educational publisher has recently changed direction, in a bid to become a “digital first business”. 

There are some encouraging signs in its latest set of results. Its virtual learning division has reported underlying sales growth of 11 per cent, while adjusted operating profit rose by 28 per cent. Management said this reflects strong enrolment growth in its virtual schools and its online programme management scheme.

However, its ascent is far from stellar. Pearson expects its virtual learning arm to experience low-to-mid single-digit revenue growth in 2022. Meanwhile, its margins currently sit at a lowly 4 per cent. However, its assessment and qualifications division, which generates over a third of group revenue, has healthier margins of 18 per cent. 

Indeed, underlying sales growth was fuelled by assessment & qualifications, largely thanks to Pearson’s professional certification products. Statutory profits fell, however, as a result of restructuring costs. Last year’s gain following the sale of Pearson's stake in Penguin Random House also made 2020 a tough comparator. 

Pearson reduced its debt from £463mn at the end of 2020 to £350mn at the end of 2021, and is splashing some cash on shareholders. Dividends have been edged up by 5 per cent and the group intends to repurchase £350mn-worth of shares in 2022.

Meanwhile, it has made some interesting acquisitions, purchasing Faethm – a workforce AI and predictive analytics company – for £65mn. In a rogue move, the group has also acquired a 40 per cent interest in Academy of Pop, a performing arts learning platform.

Ultimately, however, Pearson’s digital revamp has yet to display any star quality – even though its long-term prospects are good. Hold. 

Last IC View: Hold, 708p, 8 Mar 2021

PEARSON (PSON)   
ORD PRICE:674pMARKET VALUE:£5.1bn
TOUCH:673.6-674.2p12-MONTH HIGH:884pLOW: 571p
DIVIDEND YIELD:3.0%PE RATIO:32
NET ASSET VALUE:564p*NET DEBT:11%
Year to 31 DecTurnover (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
20174.510.4249.917.0
20184.130.5075.618.5
20193.870.2334.019.5
20203.400.3541.019.5
20213.430.1621.120.5
% change+1-55-49+5
Ex-div:24 Mar   
Payment:6 May   
*Includes intangible assets of £3.7bn, or 484p a share