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Pearson exits the pandemic in better shape

The online education specialist has delivered encouraging interim figures as its main markets revert to normal trading conditions
August 1, 2022
  • 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:811pMARKET VALUE:£5.96bn
TOUCH:801-803p12-MONTH HIGH:884pLOW: 571
DIVIDEND YIELD:2.6%PE RATIO:22
NET ASSET VALUE:609p*NET DEBT:20%
Half-year to 30 JunTurnover (£bn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
20211.604.002.306.30
20221.7917917.56.60
% change+12+4375+661+5
Ex-div:11 Aug   
Payment:19 Sep   
*Includes intangible assets of £4.1bn, or 563p a share