ii view: virtual learning keeps Pearson on target

Third-quarter trading update to 30 September

• Adjusted revenue up 4%

Guidance:

• Continues to expect full-year revenue and profit will match current City forecasts

Chief executive Omar Abbosh said:

"Pearson delivered another quarter of good progress, with accelerated sales growth in Q3, and robust performance across our businesses. Our teams continue to execute against our strategic priorities, leading on the application of innovative technologies and growing our enterprise customer footprint. 

“With clear drivers for strong future growth, we are well positioned for the opportunities that lie ahead, supporting our medium-term outlook."

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ii round-up:

Pearson (LSE:PSON) today detailed growth in quarterly sales led by the virtual learning business, with the education company reiterating hopes for annual sales and profit to prove in line with current City forecasts. 

Adjusted third-quarter sales to late September rose 4%, accelerating from growth of 2% in the first half, driven by gains of 17% and 4% for Virtual Learning and Assessment & Qualifications (A&Q). Strong sales growth in the fourth quarter is expected to fuel an annual gain of 4%, with underlying profits and adjusted for currency moves forecast at £606 million. That’s potentially up from last year’s £600 million.

Shares in the FTSE 100 company rose 3% in UK trading having come into this latest news up 5% over the last year. The FTSE 100 index is up almost 11%. Harry Potter publisher Bloomsbury Publishing (LSE:BMY) is down by close to a third over that time. 

Highlighting itself as the world's leading learning company, Pearson operates across the five divisions of A&Q, Virtual Learning, Higher Education, English Language Learning and Workplace or Enterprise skills. 

Sales from English Language Learning and Enterprise skills rose 1% and 2% respectively from the year ago quarter. Higher Education sales fell 1%, hindered by poor demand away from its core US market.

Sales for the nine months to late September are led by a 4% gain for Virtual Learning, a 3% improvement for Enterprise skills, 2% gains for both Assessments & Qualifications and Higher Education and a 1% retreat for English Language Learning. 

Broker UBS reiterated its ‘buy’ stance on Pearson shares post the update, flagging a price target of £14.60 per share. Full-year results are likely to be announced late February or early March. 

ii view:

Started by Samuel Pearson as a civil engineering business in 1844, Pearson today employs over 17,000 people. A&Q, generated most sales during 2024 at 45%. That was followed by Higher Education at 23%, Virtual Learning 14%, English Language Learning 12% and Workforce Skills 6%.

For investors, predicting the exact impact of AI on the education sector offers difficulty and uncertainty. Small adjusted losses for both Higher Education and English Language Learning were reported at the half-year results. A forecast price/earnings (PE) ratio broadly matching the three-year average may suggest the shares are not obviously cheap, while sizeable sales generated overseas can see currency moves impacting. 

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On the upside, a refocused strategy and what Pearson previously noted as an addressable $80 billion marketplace, cannot be ignored. A push to enhance products via AI is now seeing the services of Microsoft and Amazon’s AWS utilised. Demand for IT skills regularly assists its A&Q business, while an increased emphasis on its Enterprise Skills division is being given as it attempts to help the one billion people estimated by the World Economic forum that will require reskilling by 2030.   

In all, full-year estimates leave much to do in the fourth quarter. That said, Pearson’s heightened technology emphasis using AI and a likely growing need for increased workplace re-training in the future, should generate investor support over the longer-term. 

Positives: 

• Diversity of business divisions
• Refocused strategy

Negatives:

• Uncertain economic outlook
• Currency movements can hinder performance

The average rating of stock market analysts:

Strong hold