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Will Investors Like What They Learn From Pearson’s Trading Statement?

Published 28/07/2017, 11:25
Updated 09/07/2023, 11:32

By Connor Campbell, Financial Analyst for Spreadex

Stock of the day: Pearson (LON:PSON) PLC

The education company has seen some truly absurd market movements so far this year. From the very start of 2017 it has put investors through the wringer, plunging 29% on the 18th January after a startlingly bleak update.

Not only did Pearson reveal that its annual operating profit would be around £180 million(!) lower than initially forecast, it also was forced to reset its 2017 dividend after its North American business saw revenue drop by nearly a third in the final quarter of the year. To top it off, Pearson also announced it was putting its 47% stake in Penguin Random House – the world’s largest publisher – up for sale. Trading statements don’t come much worse than that.

Having hit its worst price since the financial crisis – at one point it was trading at just £5.50 – there was only really one direction Pearson could go. Despite posting a pre-tax loss of £2.6 billion, unsurprisingly the biggest in its history, at the end of February Pearson had climbed towards £7. A slump across March was then recovered by early April, only for the stock to shed 6.7% as analysts at BNP Paribas (PA:BNPP) warned growth at Pearson’s increasingly important virtual schools division may not be sustainable.

But don’t worry! Another ludicrous move was just around the corner, as almost exactly a month after that collapse Pearson surged 12% to a £7.38 after announcing that it may sell its US school K12 courseware publishing business. That division was one of the main reasons for the company’s profit-erasing drop in revenue, so investors were clearly delighted that it is on the chopping block.

If you think the drama ends there, then more fool you, as Pearson swiftly undid most this K12-goodwill in mid-July. The stock hit a sub-£6.25 3-month low after it snuck an effective dividend warning in alongside news that it had sold a 22% stake in PRH to German firm Bertelsmann (D:BTGGg) (which now owns 75% of the publisher). Pearson has managed mild rebound since then, now sitting at a current trading price of £6.62

In terms of next week’s interim results, analysts are expecting Pearson to post a 9% rise in revenue to £2.04 billion, with earnings of 1.57p per share (up from the 1.3p loss seen the year before). Investors will just be praying that the company doesn’t have another nasty surprise up its sleeve.

Pearson PLC has a consensus rating of ‘Hold’ alongside an average target price of £7.02.

Pearson PC; Spreadex

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