3rd Mar 2023 14:22
(Alliance News) - Analysts were optimistic about Pearson PLC's annual results and outlook on Friday, but warned that "not everything is doing well" as the stock took a slight hit.
The company provides publishing and assessment services to schools and corporations, as well as to students directly.
Pearson on Friday said its annual results were ahead of expectations for the second year in a row, as both revenue and profit rose by double-digit percentages.
Pearson said sales rose by 12% to GBP3.84 billion for 2022 from GBP3.43 billion in 2021.
Sales were up 8% in Assessment & Qualifications and up 4% in Virtual Learning. In Higher Education, however, sales were down 4%, due to a decline in enrolments and a "loss of adoptions to non-mainstream publishers", Pearson explained.
Before the results were published, Barclays had said: "Overall everything is on track and they have beaten on profit in 2022. But there are higher cash costs to take out the savings for 2023 and the unit sales at Higher Ed are a little concerning."
Pretax profit surged by 82% to GBP323 million from GBP177 million, as basic earnings per share grew to 32.8 pence from 23.5p.
Operating profit jumped to GBP271 million in 2022 from GBP183 million in 2021.
Adjusted operating profit was up 11% on an underlying basis to GBP456 million, slightly beating guidance of GBP455 million. This was driven by operating leverage on revenue growth and property cost savings, partially offset by inflation, Pearson said.
interactive investor Head of Investment Victoria Scholar said: "Pearson has successfully been laser focused on digitisation, attempting to position itself as a Spotify or Netflix for education through its Pearson Plus subscription, giving users access to all its textbooks for USD14.99 a month.
"Pearson has also been diversifying its offering by spreading beyond higher education into workplace training as well. Upskilling, reskilling, and digitisation have allowed Pearson to top earnings expectations in 2022 with particular strength in workforce skills, English language learning and virtual learning. It has also benefited from favourable currency movements. Offsetting this to some extent was weakness in higher education driven by a drop in enrolments. Pearson has been tackling the inflationary pressures through property cost savings."
Analysts at Shore Capital said that the release flags "strong operational and strategic momentum."
"We are pleased to note a year of solid trading momentum and strategic implementation as Pearson continues to increase its exposure to/competitive position within digital products, and its status as a beneficiary of a positive long-term outlook for global learning spend," Shore Capital added.
Pearson also declared a 14.9 pence final dividend, up 4.9% from 14.2p a year prior. This brings the total annual dividend to 21.5p, also up 4.9% from 20.5p.
"Education group Pearson has made a remarkable turnaround after years of being in the doldrums. Its second year in a row of better-than-expected financial results shows its repair job wasn't a quick plaster on the wound," AJ Bell Investment Director Russ Mould said.
"There are many moving parts to the business and not everything is doing well, which implies management has to study harder to find solutions to get the company firing on all cylinders. The shares have had a great run, up 44% over the past 12 months, but there wasn't enough in the latest results to sustain that momentum and so the stock slipped amid investors taking profits."
Shares in Pearson were down 3.9% to 886.80 pence each in London on Friday afternoon. In the year-to-date the stock is down 6.2%.
Also commenting on the share price, ii's Scholar said: "Investors are excited about the opportunities that Pearson is grabbing, and this has been reflected in its impressive one-year share price performance, up over 45% making it one of the best performing stocks on the FTSE 100. However its lack of share buyback announcement is putting pressure on the stock today which is languishing at the bottom of the FTSE 100."
Looking ahead, Pearson said it is confident of achieving underlying sales growth of low to mid-single digit in 2023, with adjusted operating profit in line with current market expectations.
It expects revenue to increase in English Language Learning and Workforce Skills, but expects revenue in Higher Education to decline by a low-single-digit percentage, though with increased margins. It also expects revenue in Virtual Schools to decline by a mid-single-digit percentage due to the end of Covid-19.
Shore Capital said it expected Pearson to generate revenue of GBP3.85 billion in 2023, with a pretax profit estimates of GBP597.8 million.
Shore Capital reiterated its 'buy' recommendation, with a price target of 923p.
By Sophie Rose, Alliance News reporter
Comments and questions to [email protected]
Copyright 2023 Alliance News Ltd. All Rights Reserved.
Related Shares:
Pearson