ShoreCap encouraged by Pearson's 'solid start' to the year
Analysts at Shore Capital upgraded shares of UK technology and publishing outfit Pearson from 'hold' to 'buy' on Friday, noting it was "encouraged" by the group's "solid start" to the year as outlined in its first-quarter trading update published earlier in the session.
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Pearson's trading statement indicated a strong start to the year, with total underlying revenue growth of 2% and an "on track" operating performance. The Cambridge-based firm also confirmed that it was on course to deliver cost savings of more than £330m by the end of the trading year.
Underlying revenues for Pearson's North American and core segments were ahead 2% and 4% year-on-year, respectively, while its growth segment posted a flat performance.
Looking forward, Pearson indicated that it would continue to accelerate its digital transformation programme and highlighted "momentum in key structural growth opportunities". Full-year guidance was unchanged with operating profits pegged to come in around £590m-£640m.
Discussing the update, ShoreCap said: "We are encouraged by the solid start to FY19F indicated in this morning’s release and are 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."
With Pearson's current P/E and DPS valuations, as implied by the then current price of its stock, not appearing to be so demanding relative to its expectations for a "solid three-year EPS and DPS progression" and strong cash generation, the broker decided to upgrade its recommendation from 'hold' to 'buy' and reiterate its 865p target price.