Educational publisher Pearson (PSON) has slashed its interim dividend and launched a fresh wave of restructuring. The half year payout of 5p per share compares to an 18p cash return a year ago.
That more cost cutting will mean 3,000 or so jobs being axed represents a renewed effort to balance its own books in the face of soaring debts. Net debt as of 30 June stands at £1.63bn, up £207m. That works out at 30% of its current £5.45bn market capitalisation.
These actions will come as little surprise to Shares readers as we flagged a potential dividend cut following Pearson’s latest profit warning in January. The wider market also seems to have braced itself, judging by today's modest 1% decline in the share price of the FTSE 100 company, to 661.5p.
ONGOING ISSUES
One of the issues the company faces is that US students are no longer buying expensive academic books. The educational publisher aims to cut costs by approximately £70m in 2018, an extra £130m in 2019 and £100m in 2020.
Broker Liberum maintains its negative view on the stock, highlighting structural pressures slap bang in the middle of the essential US higher education selling season (before the start of the new school/college year).
This division is estimated to represent 46% of profits after Pearson decided to sell a 22% stake in Penguin Random House. Underlying sales were up 1% over the period, driven primarily by lower returns in US higher education courseware and higher gross sales.
ATTACKING COSTS
At least Pearson’s operating cost plans seem to be paying off. In the first half of 2017, adjusted operating profit jumped from £15m to £107m, although much of that will be due to weak sterling.
Back to the dividend, Liberum now anticipates a full year payout of 14p to 15p, a far cry from the 52p per share paid in 2016. At the lower level it would imply a fairly modest income yield of 2.1%, described by the analyst as ‘disappointing’.
Pearson shares are trading at a forecast 19.8-times the estimated 33.4p of earnings per share for the year to 31 December 2018.
