ii view: Pearson more optimistic about sustainable growth

Offering confidence in the outlook and with a new £350 million share buyback programme. We assess prospects. 

Full-year results to 31 December 2021

• Revenue up 1% to £3.43 billion
• Adjusted operating profit up 33% to £385 million
• Final dividend of 14.2p per share
• Total full year dividend up 5.1% to 20.5p per share
• New £350 million share buyback programme
• Net debt down 24% to £350 million

Guidance:

• Expects mid to single digit revenue growth from 2022 to 2025
• Expects profit margins to remain relatively stable near term

Chief executive Andy Bird said:

“2021 has been a year of strong progress with the Group's financial performance ahead of expectations. This reflects disciplined management of the business, operational execution, commitment of colleagues around the world and their ability to successfully navigate challenging market conditions. 

“Pearson is a digital first business, with consumer grade products, and the momentum across the company underpins our confidence for further growth in 2022 and beyond."

ii round-up:

Education company Pearson (LSE:PSON) today offered upbeat outlook guidance and announced a new £350 million share buyback programme as it continued to transform in an effort to move closer to its customers. 

A one-third increase in adjusted operating profit to £385 million matched City hopes, with management’s medium-term guidance pointing towards mid- to single-digit revenue growth from 2022 to 2025.

Pearson shares rose by more than 11% in UK trading to leave them up by over 40% since pandemic market lows in March 2020. Shares for scientific publisher and exhibitions provider RELX (LSE:REL) are up by a similar amount over that time. Economically sensitive advertising giant WPP (LSE:WPP) has more than doubled.

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Broker Morgan Stanley noted that the buyback and guidance highlight management's confidence in the current momentum of the business and in the path towards a period of sustained growth.

Pearson has five divisions: Assessment & Qualifications, Virtual Learning, English Language Learning, Higher Education, and Workforce Skills. 

Sales for the biggest business Assessment & Qualifications led the way over the year, growing by 18% to £1.2 billion. Sales for its English Language learning division came a close second expanding by 17% to £238 million, while revenue growth of 11% for Virtual Learning to £713 million left it in third place. 

Its direct-to-consumer strategy is being fronted by its Pearson+ app, which had 2.75 million registered users at the end of 2021. Pearson is looking to sell more directly to consumers now that learning content can be accessed online. Sales for its Higher Education business selling more to learning establishments fell 5% over 2021 to £849 million.

Under the pandemic and in a period termed the ‘Great Resignation,’ many US workers have resigned without having another job lined up, with many looking to study and retrain.

ii view:

Pearson is a major global education company. Most of its sales come from North America. Chief executive Andy Bird, who joined in October 2020, is attempting to focus on demand for digital learning tools, workforce skills gaps and demand for accreditation and certification. Assessment & Qualifications generated just over half of its profit in this latest financial year, followed by Higher Education at around a fifth and Virtual Learning at just under a tenth. 

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

More favourably, confidence in the outlook appears to have been underlined given upbeat outlook guidance and a new share buyback programme. The pandemic has accelerated the company’s move online, and business disposals have helped lower group debt. A historic and estimated future dividend yield in the region of 3% is also not bad in the current era of ultra-low interest rates. In all, and while some caution still looks sensible, scope for longer-term optimism does appear to be growing. 

Positives: 

• Cost savings programme ongoing
• Relatively attractive dividend (not guaranteed)

Negatives:

• Full-year revenue only up 1%
• Pandemic and economic outlook uncertainty

The average rating of stock market analysts:

Hold