ii view: Pearson makes a loss but protects the dividend

With a push online and a new CEO in the wings, should investors now take a closer look?

Half-year results to 30 June 2020

• Adjusted revenue down 17% to £1.49 billion
• Loss of £23 million, down from a profit of £144 million
• Interim dividend unchanged at 6p per share
• Net debt down 29% to £982 million

Guidance:

• On track to meet analyst adjusted full-year profit forecasts

Chief executive John Fallon said:

"Covid-19 has had a major impact on trading, but we are encouraged by the improving trends and pick up in sales in June. Uncertainty remains, but the purpose, grit, speed and ingenuity shown by Pearson colleagues is helping educators and learners around the world to adapt to the pandemic and will ensure that the company itself emerges stronger from it. 

“The long-term shift to online learning is accelerating. The lead indicators of digital take up of our products are encouraging, and signals that our focus on experience, outcomes and affordability will prove a winning combination."

ii round-up:

Education company Pearson (LSE:PSON) today reported a first-half loss of £23 million as closed schools and assessment centres under Covid-19 impacted. 

But signs of improving trading in June left management believing that it could still meet analyst’s full year adjusted profit forecasts in the region of £330 million. 

Pearson shares drifted just over 1% lower in afternoon UK trading having risen by nearly a fifth since late March. Shares for fellow publisher and events organiser RELX (LSE:REL) are up by around 15% since the UK lockdown begun in late March.

Group net debt reduced by nearly a third year-over-year to £982 million. Available cash liquidity currently stands at around £1.6 billion, including the £530 million it previously received from its remaining stake sale in Penguin Random House.  An unchanged half-year dividend of 6p per share was declared, following on from its 2019 final payment of 13.5p per share. 

Pearson employs over 20,000 staff across nearly 70 countries. The US generates nearly two-thirds of total group sales. 

Its search for a replacement chief executive continues, although was said to be “well advanced” by chairman Sidney Taurel. 

The company operates both online learning facilities and assessment centres, as well publishing both digital and print courseware. 

ii view:

Under the departing chief executive, Pearson has been pursuing a strategy to become a simpler and more efficient business, focused on fewer but bigger opportunities that contribute towards growth and its digital transformation.

The publisher’s move to shift online is progressing. A revenue split of 36% digital (2018: 34%), 30% digitally enabled (2018: 28%) and 34% non-digital (2018: 38%) was achieved in 2019. Now, Covid-19, while disrupting its published textbook use in schools and closing testing and assessment centres, is bring its online services into sharper focus.

For investors, a £140 million push from Covid-19 into first-half losses was not in the script late last year. Uncertainty regarding the outlook for the pandemic and its potential to disrupt assessment centres and hinder school textbook sales needs to be remembered. But the group’s move digitally combined with the push that the Covid is giving to home schooling can also not be ignored. For now, and sat on a historic dividend yield of over 3% (not guaranteed), Pearson may offer some appeal to speculative patient income seekers. 

Positives: 

• Lower net debt
• Dividend still being paid (not guaranteed)

Negatives:

• Global H1 assessment profit down 61%
• Share buyback programme halted in March

The average rating of stock market analysts:

Hold