- Pearson+ subscriptions on the rise
- Progress on operating costs
You would think that a company like Pearson (PSON), a provider of online educational services, would have enjoyed a good pandemic due to the spread of remote learning. But Covid-19 had both positive and negative impacts. In 2020, the company’s ‘virtual schools’ revenue increased by 29 per cent to £413mn courtesy of the virus, yet business areas such as global assessment suffered due to school closures and the postponement of examinations.
The company’s latest half-year figures suggest that apart from ‘higher education’, the main business strands have gained momentum as trading conditions normalised, leading to underlying sales growth of 6 per cent at constant currencies. Registered users for the Pearson+ app increased by 64 per cent to 4.5mn and cumulative paid subscriptions also increased appreciably, albeit from a modest base. It is also clear that appetite for English language courses shows no signs of abating.
A high proportion of sales are denominated in US dollars, so Pearson booked a gain on translation of £334mn compared with a loss £41mn in the first half of 2021. This fed through to a 22 per cent increase in underlying operating profit to £160mn. However, the improvement is also linked to further integration of the company’s online platforms. The onus is on margin expansion and management has identified another £100mn in operational synergies and savings to be delivered in 2023.
Sales and operating profit expectations remain unchanged based on prevailing exchange rates. The encouraging half-year figures followed on from upgrades by Deutsche Bank and Morgan Stanley, and the market responded positively on results day. Analysts will be keeping an eye on Pearson+ subscription rates given the potential upside. But with the shares trading at 18 times forecast earnings, the market appears to be up to speed. Hold.
Last IC View: Hold, 674p, 25 Feb 2022
PEARSON (PSON) | ||||
ORD PRICE: | 811p | MARKET VALUE: | £5.96bn | |
TOUCH: | 801-803p | 12-MONTH HIGH: | 884p | LOW: 571 |
DIVIDEND YIELD: | 2.6% | PE RATIO: | 22 | |
NET ASSET VALUE: | 609p* | NET DEBT: | 20% |
Half-year to 30 Jun | Turnover (£bn) | Pre-tax profit (£mn) | Earnings per share (p) | Dividend per share (p) |
2021 | 1.60 | 4.00 | 2.30 | 6.30 |
2022 | 1.79 | 179 | 17.5 | 6.60 |
% change | +12 | +4375 | +661 | +5 |
Ex-div: | 11 Aug | |||
Payment: | 19 Sep | |||
*Includes intangible assets of £4.1bn, or 563p a share |