ii view: momentum maintained at Pearson

Fourth quarter (Q4) and full year (FY) trading update

• Q4 adjusted revenues up 3%
• FY adjusted revenues up 3%

Guidance:

• Continues to expect FY adjusted operating profit of between £595-to-£600 million

Chief executive Omar Abbosh said:

"I am pleased with the progress Pearson has made in 2024, successfully executing against our financial and strategic priorities. I'm particularly encouraged to see the growing commercial momentum of our AI enhanced offerings and the strategic Enterprise partnerships that we have established, such as the latest with Microsoft. These reflect the strength of our proposition and the opportunities that lie ahead.”

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ii round-up:

Pearson (LSE:PSON) today detailed fourth-quarter and full-year sales matching City expectations, with the education materials provider maintaining its forecast for adjusted 2024 operating profit.

Full-year adjusted sales rose 3% year over year, with annual adjusted operating profit still expected to come in at between £595 million and £600 million. That’s potentially up from 2023’s £573 million. Fourth-quarter adjusted sales to 31 December gained 3%, down from 5% in the prior quarter. 

Shares in the FTSE 100 company fell 2% in UK trading having come into this latest news up by around a third over the last year. That’s similar to the publisher of the ‘Harry Potter’ books, Bloomsbury Publishing (LSE:BMY), and comfortably ahead of a near 11% gain for the FTSE 100 index.  

Pearson operates across five divisions, promoting itself as the world's leading learning company. Adjusted sales for its core Assessment & Qualifications (A&Q) business, generating around 40% of annual sales, climbed 4% in the final quarter. 

English Language learning related sales, accounting for around a tenth of overall sales, remained buoyant, climbing 11%. 

Those for Higher Education, generating its second-biggest slice of 2023 sales at 23%, gained 2%, making for a first annual gain in a decade of 1%. 

Headed by former Microsoft executive, Omar Abbosh, management has been reshaping the company to better capture growth under expected changes in demographics and AI advancements.  

Broker UBS reiterated its ‘buy’ stance on Pearson shares post the update. Full-year results are scheduled for 28 February. 

ii view:

Began as a construction company in 1844, Pearson today employs over 17,000 people. Group focuses now include growing digital related sales, focusing down on costs, and reshaping the business portfolio. Pearson investment priorities include educational assessments, work skills and a focus on aiding early careers.  

For investors, predicting the exact impact of AI on the education sector offers difficulty and uncertainty. Virtual learning sales fell 4% year-over-year, hindered by tough comparatives. Costs for businesses generally remain elevated, while a forward price/earnings (PE) ratio above the three-year average may suggest the shares are not obviously cheap. 

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On the upside, a refocused strategy and what Pearson has noted as an addressable $80 billion marketplace, cannot be overlooked. A multi-year strategic partnership with LinkedIn owner Microsoft was previously launched, focusing on AI-driven innovation. Demand for IT skills regularly assists its A&Q business, while there's an increased emphasis on its Work Skills division as it attempts to help the one billion people estimated by the World Economic forum that will require reskilling by 2030.  

On balance, and despite ongoing risks, an established relationship with tech giant Microsoft and a likely growing need for increased workplace re-training over coming years now offer support.    

Positives: 

• Diversity of business divisions
• Refocused strategy

Negatives:

• Uncertain economic outlook
• Currency movements can hinder performance

The average rating of stock market analysts:

Buy