ii view: Pearson's plans for 2021 get big thumbs up

Mixed fortunes in 2020, but this educational publisher is recovering. We assess prospects for '21. 

Full-year results to 31 December 2020

Chief executive Andy Bird said:

“Despite the significant challenges of 2020, it is thanks to the tenacity and commitment of colleagues around the world that Pearson has delivered a solid financial performance. This year, as we recover from the impact of the pandemic, we are focused on delivering revenue and profit growth.

“Our purpose has never been so relevant: we exist to help everyone achieve their potential through learning. I have witnessed this first-hand every day since joining Pearson, having spent time with customers, employees and other key stakeholders. I have enormous optimism in the future and our ability to unlock our potential and drive sustainable growth.

“Following significant investments in technology and comprehensive restructuring, Pearson is moving at pace and ready to enter a new era as a digital-first company, focused on delivering sustainable revenue and profit growth for the benefit of all company stakeholders.”

ii round-up:

Plans to push Pearson's (LSE:PSON) targeting of consumers learning from home via its online courses proved the focus in a strategy update accompanying its 2020 full-year results.

New chief executive Andy Bird, who joined in October, hopes to reposition Pearson for sustainable growth, building on demand for digital learning tools, workforce skills gaps and demand for accreditation and certification.

Adjusted results for the year to the end of December proved in line with City expectations, impacted by closed assessment centres and reduced demand for North American courseware under the pandemic. 

Pearson shares rose marginally following the news having risen by more than a third over the last year. Shares for scientific publisher and exhibitions provider RELX (LSE:REL) are down just under 10% over the last year, while the FTSE 100 index is little changed. 

Pearson’s new strategic plans include reorganising the company across five new divisions and commencing a review of its international courseware local publishing businesses. It currently offers both online learning facilities and assessment centres, as well publishing both digital and print courseware.

Sales for its existing global online learning business grew by nearly a fifth in 2020 to just under £700 million, aided by the pandemic as students studied from home and likely helping to steer the group’s new strategic direction. 

Unadjusted or statutory operating profit for 2020 grew by 49% to £411 million, boosted by the sale of its stake in publisher Penguin Random House. After a final dividend of 13.5p, the total payout is unchanged from 2019 at 19.5 per share. 

Accompanying management outlook comments pointed towards expected revenue growth, with 2021 adjusted operating profit to be in line with current market expectations of around £385 million, up from the £313 million achieved in 2020. 

ii view:

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. Changes in 2020 included the sale its of its remaining stake Penguin for £531 million and the disposal of its interest in the Pearson Institute of Higher Education in South Africa.

Looking forward, further modest disposals are expected, with additional cost efficiencies targeted of around £50 million during 2021.  Its new five divisions will be made up of Virtual Learning, Higher Education, English Language Learning, Workforce Skills and Assessment & Qualifications.

For investors, more clarity on Pearson's planned direction of travel is to be welcomed, with previous moves to switch from textbooks to online materials now targeting consumers directly and beyond students at schools and colleges. Business disposals have helped reduce group net debt, while an ongoing payment and historic dividend yield in the region of 2.5% is not to be dismissed in an era of ultra-low interest rates. That said, an estimated price/earnings ratio comfortably above the three and 10-year averages suggests the share not obviously cheap, and the company's record for transformations is arguably patchy. Evidence that the new CEO is successfully putting plans into action will be well received, but for now, the shares look to be broadly up with events. 

Positives: 

• Looking to build on existing digital strengths 
• Net debt reduced to £463 million from just over £1 billion in 2019

Negatives:

• Adjusted profit fell for three of its four existing divisions over 2020
• Share buyback programme halted in March 2020

The average rating of stock market analysts:

Weak hold