Shares in academic publisher Pearson (PSON) are down 1.2% to 872.8p in mid-morning, reversing earlier gains of more than 3%, as investors digest 2018 results.

Today’s share price action replicates in microcosm what has happened to the stock of late. The company was one of the top FTSE 100 performers in 2018 as investors looked to a recovery in its fortunes after structural challenges had led to a series of profit warnings in the preceding years.

However, it is now down 7.4% year-to-date and 15% from its 2019 high of £10.30. Sentiment wasn’t helped by the poorly received structure of a deal to dispose of its US school textbooks business.

And this most recent market reaction implies some scepticism over a pledge to get back on a growth track by 2020.

Full year results themselves showed adjusted operating profit of £546m, up 8% on an underlying basis, with underlying revenue down 1%. The dividend, which was cut heavily in 2017, was hiked 8% to 18.5p.

The company, whose central problem in recent years has been students and educational institutions moving away from expensive hard copy academic textbooks.

A DIGITAL FUTURE

The company is inching towards a more digital future, with non-digital revenue down from 41% to 38% in 2018 and digital and digitally enabled (for example providing computerised tests in physical locations) accounting for the remainder of the business – moving to 34% and 28% respectively.

Liberum’s Ian Whittaker comments: ‘Pearson had already given the main headlines on its full year 2018 results and its 2019 guidance at its January trading update so there was little new on the headline figures.’

But the analyst does point out that the extra detail provided today is likely to raise some further questions on Pearson’s ability to return to growth in 2020, and other smaller parts of business.

Shore Capital’s Roddy Davidson is more positive: ‘We are encouraged by the financial performance detailed in this morning’s results as well as the accompanying narrative and outlook comments.’

‘Taken together these strengthen our view that although not entirely out of the woods in trading terms, Pearson’s underlying businesses have now been stabilised and (in tandem with its digital transition programme) are gaining traction.’

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Issue Date: 22 Feb 2019