Pearson announces £200mn buyback

The market has been impressed by Pearson’s (PSON) steady transformation plan, which has resulted in big margin improvements and excellent cash generation. Its shares edged up following the publication of its full-year results and its cheery outlook for 2024. 

Despite flat total sales in 2023, the education giant managed to increase its adjusted operating profit by 26 per cent to £573mn. This was largely the result of slashing £120mn of costs across content support, technology and corporate property. The efficiency scheme is now complete. 

The group’s operating cash inflow also increased on a headline basis from £401mn in 2022 to £587mn in 2023, representing cash conversion of 102 per cent. Management attributed this to a better trading performance, good cash collections and reduced product development in the higher education division.

Higher education is still causing issues. It remains the second-biggest division but sales fell once again, driven by the loss of adoptions to "non-mainstream publishers" in the first half of the year and pricing mix. Cost savings resulted in a 20 per cent profit jump, though, and management expects sales growth to return in 2024. 

The wider outlook for 2024 is also encouraging. Underlying sales growth is expected to be 3.7 per cent, while adjusted operating profit is predicted to rise by 8 per cent to £621mn. Management is clearly feeling confident, announcing plans to buy back £200mn-worth of shares. 

The full impact of generative artificial intelligence on the education market remains to be seen, however. And while Pearson is expanding its AI study tools, the landscape is changing rapidly and outlook for its higher education division is hazy. Hold.

Last IC view: Hold, 862p, 31 Jul 2023