23rd Jan 2017 12:33
LONDON (Alliance News) - Credit rating agency Moody's Investors Service downgraded its outlook for educational publisher Pearson PLC to negative, but affirmed its existing credit rating.
Moody's downgraded its outlook on Pearson's ratings to negative from stable in an update on Friday, but affirmed its Baa2 senior unsecured credit rating and its Prime-2 guaranteed short-term rating.
Last Wednesday, Pearson issued a profit warning, scrapping its 2018 operating profit target and cutting its 2017 operating profit guidance to GBP570.0 million from GBP630.0 million. Pearson said the fourth quarter of 2016 had seen an "unprecedented decline" in its North American higher education courseware business, which includes printed text books.
"Changing our outlook on Pearson to negative reflects the company's weaker-than-expected Q4 2016 performance, mainly in its US higher education business, resulting in a change in its profit guidance for the next two years. There is also little visibility on a pronounced recovery as Pearson's fundamental business model is likely to continue to be challenged by lower student enrolments and disruptive structural changes," said Christian Azzi, assistance vice-president and analyst at Moody's.
However, Moody's said the Baa2 rating reflects the potential for Pearson to address its weakened credit via balance sheet management, with resources including a large cash balance and the possible disposal of its 47% interest in Penguin Random House. Moody's estimated a monetisation of the Penguin holding could yield around GBP500.0 million.
Moody's said the rating also was supported by Pearson's good liquidity, aided by its intention to reduce dividend payouts.
Shares in Pearson were up 1.4% at 597.50 pence Monday, continuing to make small gains after dropping 28% on the back of the profit warning last Wednesday.
By Adam Clark; [email protected]
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