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0 When Andy Bird joined Pearson as chief executive, the education group was paradoxically regarded as uneducable. Since then, he has impressed investors with his pizzazz and with better earnings. Full-year operating earnings of £455mn unveiled on Wednesday, were 11 per cent higher at constant currency, beating expectations.
Bird’s plan to train the publisher for digital stardom is running as smoothly as a transformation scene in an animation by Disney, his previous employer.
Cue applause from long-suffering investors. Shares hit a ten-year peak in 2015. Even a stellar performance last year could not lift the stock out of its range below that high.
Bird has achieved something almost as valuable. He has shaken the scepticism of naysayers — this column included. We doubted Pearson could triumph online after previous failures under John Fallon. In the process, Bird has proved that a bid from Apollo undervalued the company last March.
Traditional textbooks continue to decline. Sales at the higher education division fell 4 per cent last year owing to lower enrolments at US universities. Elsewhere, Pearson is expanding. Sales of English language learning materials rose 24 per cent and of professional courses 7 per cent.
Overall, underlying sales grew 5 per cent. Consensus of £3.8bn for 2022 is still a long way from their £5bn peak from a decade ago.
Cost cuts are helping lift profits. Pearson identified an additional £120mn of savings to come this year, largely from legacy operations. These should lift operating profits to £574mn this year, according to Visible Alpha consensus. On those numbers, shares remain fully priced as 18 times expected earnings per share, above their 15 times long-term average.
But peer Relx, an academic publishing business that digitised with admirable speed years ago, trades on 22 times forward earnings. Pearson traded at a consistent valuation premium a decade ago. If Bird can continue his upward flight, the current discount should erode further.
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