Interactive Investor

ii view: is Pearson a ‘Great Resignation’ winner?

Upping profit guidance and with a forecast dividend yield of over 3%. We assess prospects.

19th January 2022 15:48

Keith Bowman from interactive investor

Upping profit guidance and with a forecast dividend yield of over 3%. We assess prospects. 

Fourth-quarter and full-year trading update to 31 December

  • Full-year sales up 8%
  • Expects adjusted full year operating profit of £385 million

Chief executive Andy Bird said:

"We made great progress in Q4 and are delivering a strong full year performance, with sales growth and profit exceeding our original guidance. Led by a strong management team, we are repositioning the business, driving digital innovation. We are well placed to build on this momentum in the year ahead and look to the future with confidence."

ii round-up:

Education company Pearson (LSE:PSON) today raised its annual profit estimate as sales for its largest division Assessment and Qualifications (A&Q) rose further during the fourth quarter. 

Total sales year-over-year are expected to rise by 8%, pushing management’s full-year adjusted operating profit estimate to £385 million. That’s ahead of analyst forecasts of nearer to £375 million. 

Pearson shares rose by more than 6% in UK trading, leaving them up around 50% since pandemic induced market lows in March 2020. Shares for scientific publisher and exhibitions provider RELX (LSE:REL) are up by a similar amount over that time. Advertising group WPP (LSE:WPP) has more than doubled in value.

Final-quarter sales for A&Q grew by 2%, leaving full year sales up by 18%. Under the pandemic, and in a period termed the ‘Great Resignation,’ many US workers have left their jobs without anywhere else lined up, with many pursuing further education and retraining.

Annual sales for Pearson’s Virtual Learning business expanded by 11%, and by 17% at the English Language Learning operation, aided by a lifting of Covid restrictions in Australia and India during the final quarter. 

It is acknowledged in City circles that Pearson’s strategic pivot from traditional educational publisher to an increasingly digital global learning company is continuing at pace.

A new learning app, Pearson+, was launched over the year to increase its direct focus on the consumer. 

Full-year results are scheduled for 25 February. 
 
ii view:

Pearson is a major global education company. Most of its sales come from North America. Chief executive Andy Bird, who joined back in October 2020, is attempting to focus on demand for digital learning tools, workforce skills gaps and demand for accreditation and certification. Pearson five divisions now consist of Assessment & Qualifications, Virtual Learning, Higher Education, English Language Learning and Workforce Skills. 

For investors, Pearson’s record for transformations is arguably patchy. Pandemic and economic uncertainty persists and total underlying sales growth for the fourth quarter still only generated a gain of 2%. 

On the upside, the pandemic has accelerated the company’s move online. Previous initiatives to switch from textbooks to online materials have now been extended to target consumers directly, and beyond students attending schools and colleges. Business disposals have helped reduce group debt and an estimated forward dividend yield of over 3% is not derisory in the current low-interest rate environment. In all, and given the company’s ongoing transition, investors may demand further evidence of a sustained recovery.

Positives: 

  • Cost savings programme ongoing
  • Forecast dividend yield of over 3% (not guaranteed)

Negatives:

  • Adjusted profit fell for three of its previous four divisions over 2020
  • Pandemic outlook uncertainty

The average rating of stock market analysts:

Strong hold

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