Pearson plc Ordinary 25p (PSON)

Company overview

Pearson is one of the world's major publishing groups, with a series of publishing brands (Penguin, Dorling Kindersley, the Financial Times, Prentice Hall, Scott Foresman, Longman and many others). The conglomerate is focused tightly on three core businesses: 1) Education 2) The Financial Times Group 3) Penguin Consumer Books. The group operates from 60 countries and has over 30,000 employees.

HL Comment (19 January 2012)

The group's fourth quarter trading update again saw management edging earnings expectations higher. The board now expects to report 2011 adjusted earnings per share growth of approximately 10% (compared to 77.5p per share reported in 2010), ahead of its previous guidance of approximately 83p per share. Management noted that it "continued to benefit from rapid growth in digital services, an expanding position in developing economies and the continuing transformation of its business portfolio". For the year as a whole, the company generated approximately £2 billion ($3 billion) of digital revenues and approximately £600 million ($1 billion) of revenues in Emerging Markets. In summary, management believed that the group had "performed well" during the important year-end selling season.

Negative Points:

• With management having regularly increased earning guidance over the last year or so, expectations now run high prior to the company updating.
• Uncertainty over potential national and local government spending cuts in the US continues to cast a shadow over the group's Education business.
• The weak state of the physical retail book market is a risk to the publishing industry.
• The outlook for advertising markets, (for the Financial Times) remains subject to macro-economic conditions.
• Currency volatility can work both for and against the company. With the group generating approximately 60% of its sales in the US, the movement between the pound and the dollar remains significant.

Positive Points:

• Management has again raised profit guidance.
• Pearson enjoys strong global market positions. It is both the largest education company and the largest book publisher in the world.
• Penguin's publishing performance was summarised as “strong” during its key trading season. The group noted that "Penguin continues to benefit from its innovation and scale in the fast-growing digital books market."
• Pearson has over recent years made acquisitions in Brazil, China, South Africa, Nigeria and India. The board highlighted that "it was benefiting from recent portfolio changes, using the proceeds from disposals to invest in fast-growing businesses in developing economies and digital services."
• The group's dividend policy remains progressive – the half year dividend was raised by 8% to 14.0p per share.

Consensus:

On balance, market consensus opinion currently denotes a strong hold.

All yield figures are variable and not guaranteed.

Fundamental Data

Values are quoted in the stock's local currency: British pound.