Questor share tip: Pearson's progress in America and China is educational

A booming US education sector prompted Rupert Murdoch's News Corporation to delve into a new area of media last year when he bought Wireless Generation for $360m (£228m).

Pearson
£11.41 +10p
Questor says HOLD

Pearson proudly admits that its idea to grow a US education business came 10 years earlier.

While the group's reliance on education is not without risk, as it is dependent on state budget decisions, it has proved lucrative for Pearson.

North American education is Pearson's largest business, with 2010 sales up 7pc to £2.6bn. Total revenues at Pearson in 2010 were £5.66bn.

Judging by its acquisition strategy, Pearson seems to be taking the right steps to grow its education business and respond to the US government's plans for education.

Its latest bolt-on acquisition of Schoolnet reacts to the US government's increased focus on personalised, computer-based learning.

Barack Obama's government has highlighted education as an area of the US that requires reform, particularly K-12 (primary and secondary). Through schemes such as Race to the Top, around $17bn has been allocated to states and districts to support school improvement in recent years.

Industry analysts were on Tuesday interested in the possibility of Pearson applying Schoolnet's technology to its other education businesses around the world.

Its international arm is growing rapidly. International education sales totalled £1.47bn last year, with headline growth of 18pc at the unit in 2010.

Much of what Pearson has learned in the US is now being applied globally. While there still significant dependence on US state education budgets, this is becoming less of an issue with the rapid growth of global education.

As Pearson seeks faster growth in new, emerging education markets, also interesting is its move into new areas within education.

One example is its rapid development of English language schools in China. Pearson has about 70 English-language schools in China, 45 of them branches of Wall Street English, which it acquired for £145m in April 2009.

Wall Street English caters to China's huge and growing market of "aspiring professionals" aiming to polish their business English. Pearson also has 21 Longman schools which cater to children. An estimated 200m to 350m Chinese are either studying or speaking English, with around 50,000 companies offering private English classes in China.

Pearson's other businesses performed well in 2010, although the physical books market is clearly in decline.

Penguin's strong performance last year has been linked to the popularity of ebooks, with ebook revenues up 182pc. Last year, The Fry Chronicles by Stephen Fry became a bestseller in five formats, which included two ebook versions.

The FT Group, the division which includes the Financial Times, performed well in 2010, with revenues of £403m, although the picture for 2011 is not clear.

Paid-for digital subscriptions rose 50pc in 2010 to 207,000 and there have been nearly 1m downloads of FT apps on mobile phones and tablets.

Questor believes the shares are a hold.