Pearson’s first quarter trading statement earlier in the day showed total underlying revenue growth of 2% and operating performance “on track” to deliver cost savings of at least £330m by the end of the year and adjusted operating profit of £590mln-£640mln and adjusted earnings per share of 53.5p-59.0p.
ShoreCap analyst Roddy Davidson noted that the company aims to continue accelerating its digital transformation programme and flags “momentum in key structural growth opportunities”, plus the addition of two new experienced non-executive directors to the board.
Despite the quarter being Pearson’s least significant in the year, the analyst said he was encouraged and is “positive on the potential for PSON to tap into long-term growth in global learning spend”.
“Although the company still has a few trading issues to overcome and a fair degree of organisational change to execute, most of its underlying businesses appear to be gaining traction – as does its digital transformation strategy.”
The shares, currently trading at around 15% full-year EPS and dividend yield of 2.6% following a period of “indifferent” performance, give a valuation that "does not appear demanding” relative to ShoreCap’s expectation of “solid” three-year EPS and DPS growth of 31% and 16% respectively, accompanied by strong cash generation.
Davidson estimated fair value for the shares of 1,020p and decided to upgrade his recommendation to ‘buy’ from ‘hold’.