Pearson's underlying revenue rose 5% in the first nine months of the year. This included a strong performance across Assessment & Qualifications and English Language Learning. There were double digit declines in Virtual Learning, which was broadly as expected. Higher Education revenue also continued to decline.
Overall performance has been better than expected. Full year underlying operating profit expectations have been upgraded by around £20m to £570 - £575m. The group completed just over a third of the planned £300m share buyback in the period.
CEO Andy Bird will be stepping down from his position on 8 January 2024, when new CEO Omar Abboash will start. Bird will stay with Pearson until the end of March to ensure a smooth transition.
Pearson shares rose 1% following the announcement.
View the latest Pearson share price and how to deal
Our view
Every day's a school day and educational specialist Pearson can teach us all a thing or two about resilience. While the wider economy is under pressure, the likes of vocational testing, English Language Learning and broader assessments and qualifications are all being taken up in force, boosting Pearson's top and bottom line.
A laser-like focus on boosting digital areas of the business and reducing exposure to the declining courseware business, means margins are climbing. Wider improvements have been achieved by some well-suited acquisitions, as well as organic growth through its own efforts. These include, focusing on direct-to-consumer business and slimming the group's physical footprint.
The successful pivot to digital allows more revenue to drop straight through to profit and crucially, cash flow. This gives Pearson room to pay dividends and return more to shareholders via share buybacks.
Cash flow is being partially hampered by restructuring costs at the moment - while this isn't something we're concerned about right now, it will be important to monitor the efforts to make sure the goal posts aren't moved as this could have an impact on dividend. This is well supported by earnings for now but remember no shareholder returns are ever guaranteed.
Looking to the short-term, times of economic difficulty are often seen in conjunction with people upskilling, which is a structural opportunity for Pearson.
While we're happy Pearson's on the right track, and the turnaround plans are coming good, we're keeping an eye on a couple of points. It's unclear how much the group will benefit from a return to more normal teaching and exams. At the moment the uptick is promising, but they were starting from a very low base because of the pandemic. Much of the group's revenues are still anchored to physical teaching and testing. Demand for physical textbooks has been on the decline for years and that isn't going to reverse.
As the strategic pivot continues, we're mindful that budgets and margin projections can turn at short notice too, particularly in an inflationary environment.
Pearson is putting in a good showing, and we're feeling more positive that it can convince customers to stick with its digital shift. The price-to-earnings ratio is slightly below the ten-year average, which suggests the market isn't overly worried about Pearson's position, but there's work to be done if the group wants to spark a more meaningful reaction from investors.
Pearson key facts
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
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