ii view: Pearson buoyed by shift to digital

Education company Pearson is winning over investors after enjoying underlying growth across the business.

First-half results to 30 June 2019

• Revenue down 2% to £1.83 billion
• Adjusted operating profit up 35% to £144 million
• Dividend up 9% to 6p per share

Guidance:

Increases adjusted earnings per share forecast to be between 57.5p and 63.0p from 55.5p to 61.0p

Chief executive John Fallon said:

"We've had a good first half, with underlying growth across all divisions, as we start to benefit from accelerating our shift to digital. We are on track to at least stabilise revenue this year and return the company to top line growth from 2020. We are excited by the new digital products and platforms we're now launching, and our ability to help millions more people prepare for, develop in, and change careers through a lifetime of learning."

ii round-up:

Pearson (LSE:PSON) is an education company, with expertise in courseware and assessment, and a range of online teaching and learning services. It employs 24,000 employees in nearly 70 countries. North America generates two-thirds of group sales. 

Strategically, it aims to become a simpler and more efficient business, focused on fewer but bigger opportunities that contribute towards growth and its digital transformation.

Pearson previously completed another milestone in its simplification programme, selling its US K12 courseware business and freeing management up to focus on its 'digital first' strategy. 

The benefits of change proved evident in these half-year results. The company reported underlying growth across all divisions, including good enrolment growth for its online programme management and connections academy.

Under its digital transformation, all future releases of its 1,500 active US Higher Education Courseware titles will be digital first and updated on an ongoing basis. Group cost savings of over £330 million annualised are on track to be delivered by the end of 2019. 

The share price rose by over 6% in mid-morning UK stock market trading. 

ii view:

Investor trust is hard won and quickly lost. Core financial forecasts have been pointing downwards and a forward dividend yield of below 3% has offered limited compensation for investor risk. 

However, these results do offer encouraging signs that a sustainable turnaround is possible. The business portfolio has been rejigged and a focus on digitisation is gaining momentum, with the result that cost savings continue to be achieved. Management expects a stabilisation in sales over the full year and earnings guidance has been raised. 

Positives: 

• US K12 courseware business now sold
• Big cost savings
• Improving balance sheet - net debt reduced

Negatives:

• H1 sales declined by 2% and by 9% over 2018
• Emerging market sales fell by 16% 
• Forecasts for future sales and profits point lower

The average rating of stock market analysts:

Sell