Pearson: The long term structural
change programme at Pearson has left Education (including running exam systems)
front and centre of its operations. This leaves the group well placed to
benefit in a world where population growth continues unabated. Whilst
established markets, especially North America, are the current focus, in the
long term more and more aspiring nations will focus on advanced education in
order to gain a competitive edge. There is also the in-built advantage that more
and more emerging nations’ educational systems choose (or accept) English as
their language of education. Alongside education, the group owns the Financial
Times and has a 50% stake in The Economist Group. In 2012, Penguin was placed
into a vehicle alongside Bertelsmann’s Random House. This venture, of which
Pearson own 47%, is stated to be the largest consumer book publisher in the
world.
The group normally offers explicit guidance to analysts and the
post-close trading update for the year ending 31st December 2014 is
no different. Previous guidance of 62p-67p of eps has been tightened to a top
end 66p, helped by a lower than expected tax charge and a currency tailwind.
For 2015 the eps guidance has been introduced as 75p-80p, assuming exchange
rates and trading conditions are stable. In the five years 2009-13, eps have
ranged between a high of 86p (2011) and a low of 65.4p (2009). Having
restructured the publishing activities (and executed the Random House deal)
along with riding various road bumps in the US educational budget, the
challenge now is to deliver eps growth. After a 55p share price rise on this
update to 1295p, the shares are on a PE of 19.6x, dropping to 16.7x (at the 2015
guidance mid-point). Throughout this period, long term confidence has been
displayed through a progressive dividend, with growth around 6%-7% p.a. That
implies a 51p dividend for 2014 and 54p for 2015, producing a 3.9% yield rising
to 4.2%.
None of this seems very eye-catching, but looks more attractive
when you consider the good long term prospects for global education demand and
the brand names such as FT that they own or have an interest in. This could be
a good long term tuck away, once some of today’s froth subsides. (Neil Cumming, 21st
January 2015)
These comments are not a personal recommendation to deal. Any
investments can fall as well as rise in value, so you could get back less than
you invest. I may have a financial interest in some of the stocks written
about. www.dividendpower.co.uk or
e-mail at info@dividendpower.co.uk Twitter: @DividendPower
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