We don’t support this browser anymore.
This means our website may not look and work as you would expect. Read more about browsers and how to update them here.

Skip to main content
  • Register
  • Help
  • Contact us

Pearson - Revenues flat as digital offsets textbook slump

Nicholas Hyett | 17 October 2018 | A A A
Pearson - Revenues flat as digital offsets textbook slump

No recommendation

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Pearson plc Ordinary 25p

Sell: 595.00 | Buy: 595.60 | Change 2.20 (0.37%)
Chart View factsheet

Market closed | Prices delayed by at least 15 minutes | Switch to live prices

Revenues over the first nine months of 2018 were flat year-on-year, with an ongoing decline in US courseware offsetting growth elsewhere. However full year expectations for growth in underlying profits remain unchanged.

The shares rose 4.7% in early trading.

View the latest share price and how to deal

Our view

Digital is replacing paper the world over, and Pearson believes that will be the case in education too. The group is transforming itself from staid publishing house to trailblazer in the emerging world of digital education content.

The Economist and Financial Times are long gone, and a chunk of Penguin Random House recently followed them out the door. CEO John Fallon was confident the proceeds from these sales would mean Pearson could cover the costs of the restructure and maintain the dividend while still emerging a leaner and more profitable organisation.

This sounded like an excellent outcome for shareholders, but the sales removed the main safety net should there be a wobble. You can probably see where this is going.

Rather than a failure to get to grips with online specifically, that wobble was the result of weak demand for traditional courseware in North America. Unfortunately for investors, the decline was of 'unprecedented' size, and Pearson had to revaluate its stance on holding the dividend steady.

While the group is still targeting a sustainable and progressive dividend, this is going to be from a significantly lower base. The dividend was sliced by two thirds from 52p to 17p last year, with a prospective yield now 2.6% for 2019.

Recent updates have brought more positive news. The US is still a tough market, but we're getting significant growth in the digital sphere. Competition from free online alternatives is said to be having less of an impact than the group had expected, and much less than sceptics had feared.

Nonetheless, we'd hesitate to say the shift to digital has been vindicated just yet. Not only does the group still need to prove it can establish itself in this new sector, it'll need to prove it can do so in a robustly profitable way.

The rewards could be great, but a few things need to go Pearson's way for those rewards to be realised.

Register for updates on Petrofac

Q3 Trading Update

Pearson remains on track to post full year adjusted operating profits of £520m-£560m, while one off tax benefits are expected to boost earnings per share to between 68p and 72p (2017: 54.1p). Full year net debt is expected to be in line with last year, and Pearson is on course to deliver £300m of annualised cost savings from the end of 2019.

North American sales were flat year-on-year, as declines in courseware and Learning Studio were offset by growth in sales of online course materials and increased registrations for the group's online schools. The start of a contract to administer medical college admissions tests also boosted results.

Pearson's Core markets, which includes UK, Australia and Italy, saw revenues rise 2%. That's after a strong result from Pearson Test of English Academic and growth in online courseware - partially offset by declines in BTECs and AS levels.

The group's Growth markets of Brazil, China, India and South Africa, saw revenues fall 4%, as a slowdown in South African School Courseware dented results.

Find out more about Pearson shares including how to invest

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.