Investors continue to hold deep concerns about the core business of publisher Pearson (PSON). Today's full year 2017 trading update is doing little to address those worries, showing sliding sales and underwhelming expectations for its US education division through 2018.

Adjusted operating profit is anticipated to hit between £570m and £575m on an underlying basis in the year to 31 December 2017, the update reads. However, it is not entirely clear whether this includes or strips out a £45m one-off profit earned on disposals over the past 12 months, nor the £25m benefit from foreign currency conversions.

To investors, and Shares, this looks like a disappointing performance.  Pearson's share price shed 6.3% to 673.2p.

US EDUCATION'S FEW SIGNS OF IMPROVEMENT

Sales in the US higher education courseware business are anticipated to be flat to down mid-single digit percentage in the year to 31 December 2018.

Lower demand has been fuelled by less college enrolments and more uptake of open educational resources.

In 2017, sales in the US education division fell 3% as these trends and cautious purchasing from Pearson's partners in the fourth quarter hit trading.

Overall, Pearson’s sales show a 2% decline with a 4% drop in North America.

WHY BERENBERG DOUBTS EARNINGS UPLIFT

Pearson's rhetoric remains upbeat, with earnings guidance pitched between 49p and 53p per share in 2018. That's roughly inline with consensus expectations of 50.5p.

Yet this optimism is not widely shared within City circles. Of the 18 equity analysts that follow the stock, sellers outnumber buyers almost two-to-one.

Investment bank Berenberg remains among the sceptics. Analyst Sarah Simon anticipates earnings per share (EPS) of 50.1p for 2017 could fall by a fifth in 2018, to 40.1p.

The analyst says Pearson benefitted from several ‘non-recurring factors’ in 2017 and flags a downwards trend in 2018 and beyond. One of the biggest headwinds is heavy exposure to the US higher education industry, argues Simon.

One of the few bright spots in the trading update is a small, one-off deferred tax charge in 2017 for Pearson thanks to US tax reform.


Issue Date: 17 Jan 2018