US Edition Pearson
947½p –28½p
Questor says Hold
A few weeks back Apollo, the biggest education company by student enrolment numbers, pulled its 2011 forecasts over falling student numbers. This triggered a sell-off.
While Pearson acknowledged that some of its markets within US education remain challenging, particularly the schools division, its early shift to digital has kept it ahead of the game. No longer does it refer to itself as an education book publisher, but as a "global learning technology and services company".
Pearson, whose US education business accounted for 43pc of total group sales in the first half, has a clear competitive advantage in digital content and online services within US education, which has enabled it to win business in a tough environment.
The group recently agreed a partnership with Arizona State University (ASU) in which Pearson's learning management platform, LearningStudios, will be used to teach online courses and analyse data for improving student performance and retention. Pearson will also be involved in enrolment management, prospect generation and providing customer support to students who take courses at ASU Online. This is a good example of the increasing size of Pearson's educational offering.
As US education publishers come under pressure, the growth in online education provision should drive demand for Pearson's products. However, it is worth bearing in mind that changes in the US administration's stance on education could affect spending.
Pearson's growing exposure to emerging markets at its international education business, which now accounts for 22pc of total revenues, provides increasing resilience. While developed markets and schools publishing have come under some pressure, Pearson has seen strong demand in developing markets for its assessment services. English language learning in China and digital education tools have been a strong revenue-driver.
Consumer books has not, in recent years, proved a high growth business. However, the shift to ebooks and the development of technology and ongoing consumer take-up in this space provides opportunities for the company.
Penguin, Pearson's consumer books division, has the benefit of high quality, mass-market content – from Jamie Oliver's series in the UK to Patricia Cornwell in the US. This division is heavily reliant on the fourth quarter and sales of ebooks will be impacted by the number of iPads and Kindle eReaders bought as Christmas gifts.
The FT Group, and the FT newspaper in particular, has shown a strong performance in recent times, with an appetite for information on the recession.
However, the title is more sensitive to the changes in the economic cycle than other parts of Pearson's business. And none of the businesses is fully insulated from a deep and lasting slowdown of economic activity.
All in all, and considering the economic environment, Pearson is well-positioned – although there are clear economic risks.
The shares, which are up 45pc since they were tipped on March 3 last year, are a hold.