Shares in academic publishing firm Pearson (PSON) are surging. Up 11% to 731p, the market gives a big thumbs up to solid first quarter trading, a restructuring plan and potential plans to divest its US K12 courseware publishing business.
The announcement may relieve some of the pressure on beleaguered chief executive John Fallon ahead of today's AGM but, to put today’s share price rise into context, the shares are still down nearly 10% over the last 12 months. They trade at around half their level in early 2015 before a series of profit warnings dented sentiment towards the stock.
STREAMLINED APPROACH
As AJ Bell investment director Russ Mould notes: ‘Pearson has issued five profit warnings in four years after students in the US started renting textbooks rather than buying them. The group is now looking to create a more scaleable and more digital business which is capable of growth and margin improvement.’
You can read today’s statement in full here but the basic details are £300m worth of annual cost savings by the end of 2019, a strategic review of K12 which it says has been slow to make the digital transition and requires significant investment and first quarter trading in line with guidance and showing 6% sales growth.
DOES PEARSON FACE SAME FATE AS PAPERS?
Liberum analyst Ian Whittaker, who has been consistently bearish on the business for some time, reiterates his ‘sell’ advice and 360p price target. He sees Pearson’s predicament as similar to that of the newspaper industry ten years ago.
‘The overriding point from this is that Pearson's actions increasingly point to this story being a re-run of what happened with newspapers a decade ago i.e. a promise to the market that digital will prove to be the saviour of the business while the company goes through continued cost cutting to offset the pressures on top line numbers, which continuously disappoint, and where there is a constant stream of disposals as the company fights to offset the impact on its balance sheet of the loss of highly cash generative revenues.’
