Research, Charts & Company Announcements
Research Tree provides access to ongoing research coverage, media content and regulatory news on Pearson. We currently have 112 research reports from 6 professional analysts.
Profit warning from Pearson which now expects its FY19e adjusted OP at the bottom of its £590-640m guidance (AV: £590m), due to “significantly weaker than expected” trading in the US operations in the “key selling season”. Revenues still anticipated to stabilise but US Higher Education Courseware sales are likely to decline by 8-12% instead of the previous 0% to -5% trend. Adjusted EPS now guided at the bottom of the 57.5-63.0p range (AV: 60.8p). Our model will be adjusted accordingly (likely EPS cut: 5-6%). Reduce recommendation reiterated.
Pearson’s H1 19 results positively showed underlying sales up 2% (-2% reported), while the adjusted operating margin improved to 7.9% (versus 5.9%), reflecting the 2017-19 restructuring programme’s savings. While the group reiterated its FY19e guidance for adjusted OP at £590-640m, based on flat revenues, the target for adjusted EPS was raised from 53.5-59p to 57.5-63p (at 31/12/2018 FX) due to better figures anticipated for both finance charges and taxation. Consolidated revenues are still expected to return to growth in FY20e.
Pearson’s Q1 19 performance was in line with expectations and the group reiterated its FY19e guidance for the stabilisation of consolidated revenues. Including the US K12 Courseware’s disposal (completed at the end of Q1 19) and after adjusting for IFRS16, management expects adjusted OP of £590-640m and adjusted EPS of 53.5-59.0p, i.e. in line with our estimates. Only some fine-tunings to our forecasts with no major changes.
As expected, Pearson reported declining consolidated revenues for FY18 (-8.5% reported to £4,129m; -1% underlying, impacted by ongoing pressures in US Higher Education Courseware: -5% and US K12 Courseware). Conversely, the adjusted operating profit improved by 8% underlying to £546m, i.e. in the upper half of the guidance (£520-560m). Adjusted EPS reached 70.3p (including a c.20p one-off tax benefit and a lower finance charge) and the final dividend proposal is 13p, i.e. +8%, implying a full-year dividend of 18.5p (from17p). Acknowledging having “a lot still to do”, management expects the company’s consolidated sales to stabilise in FY19e (still underlying market pressures in US Higher Education on print courseware revenue) before growing again from FY20e. Including IFRS 16, the FY19e guidance is for adjusted operating profit of £610-660m and adjusted EPS of 55.5-61.0p including the US K12 Courseware which was held for sale and finally sold on 18 February 2019.
Pearson reported solid H1 results and confirmed its FY18 target H1 18 revenues at £1,865m, a 9% reported decline but +2% organic. Adjusted operating profit was flat at £107m but corresponding to +46% yoy underlying growth. Adjusted EPS at 8.2p (versus 5.6p). Net debt lowered to £775m (versus £1,633m in H1 17). Expect an adjusted operating profit of between £520m and £560m and adjusted EPS of between 49p and 53p.
Pearson reported FY17 results globally in line with its recent January Trading statement guidance. FY18e guidance is unchanged for an adjusted OP up between 2% and +9.8% on a comparable basis (£510m in FY17) to £520-560m and an adjusted EPS at 49-53p. No major changes to our EPS18e and EPS19e, but a slight increase to our target price. Pearson is still under restructuring mode with improving signs anticipated from FY18e but likely to be more visible in FY19e.
Ahead of the 23 February FY17 results’ release, Pearson’s January trading statement underlined FY17 profits at the top-end of guidance while confirming that US Higher Education would remain tough throughout FY18e. No major changes to our FY18e forecasts at this stage. The group is still restructuring with much yet to be delivered. We expect volatility to remain high around the stock over the coming months and prefer to await a visible recovery in the top-line and earnings (not likely before FY19e).
Reporting its 9-month trading statement, Pearson showed underlying consolidated sales down 2% (after +1% for H1 17; up 4% on a reported basis), within what remain challenging markets (namely due to the expected declines in assessment revenues in the US and UK). The 9-month North American underlying sales declined by 4% (hurt by expected contract losses in school assessment) but sales in US higher education courseware declined by only 1% on an underlying basis, i.e. slightly better than expected. Note that the good growth in US higher education digital revenues, up 11%, also helped. Positively, the group slightly increased its FY17e guidance after the 25% Penguin Random House stake disposal (closed on 5 October) for an adjusted OP at between £576m and £606m (instead of £546m to £606m) and raised its adjusted EPS target from 45.5-52.5p to 51-54p or 49-52p at current exchange rates (AV was respectively £544m and 44.20p). Pearson also confirmed it will return £300m through a share buy-back, starting on 18 October 2017 (therefore having limited impact this year) and ending before 26 April 2018. This is not included within the group’s guidance.
Reporting its H1 17 results, Pearson showed underlying sales up only 1% to £2,047m (+10% on a reported basis, mainly due to the strength of the US dollar against sterling), implying a significant decline over Q2 (Q1 was +6%). Adjusted OP came in at £107m versus £15m a year ago, reflecting the FY16 restructuring measures as well as a favourable forex impact. All this is nonetheless not very relevant as H1 is only a small part of the FY results, the group being very H2-weighted (c.60% of sales and c.90% of profits generated in H2) due to the seasonal pattern of the educational businesses. Coming as a disappointment is the 72% cut in the interim dividend to 5p, lower than expected by the market. Luckily, but only a little more than three weeks later, the group reiterated its FY17e guidance after the Penguin Random House stake disposal (please refer to our 1 August Latest) for adjusted OP at between £546m and £606m and an adjusted EPS of 45.5-52.5p. As a reminder, the OP range for FY17e retains the assumption by management of US Higher Education demand declining by 6% to 7% (impacted by enrolments and rental declines), with the bottom of the guidance range if inventory levels continue to fall (resulting in a 7% net revenue decline) and the high end of guidance if destocking at retailers is fully ended (with +1% net revenue growth). Although not over a very significant period, the North American Higher Education gross sales are “a little ahead of” expectations, while returns, down significantly over last year, “are running a little higher than expected” so far this year. It is still too early to get a clear picture on this and it will sadly not be the case before the end of this year…
Pearson announced on 11 July that it would sell a 22% stake in book publisher Penguin Random House to majority owner, Bertelsmann, for about $1bn (c.£765m). The group will keep c.25% in the publisher (subject to an 18 months lock-up period from closing, Bertelsmann having a simplified right of first offer over Pearson’s remaining stake post lock-up), which had been created in 2012 when merging Penguin with Bertelsmann’s Random House. The transaction is still subject to regulatory approval and is likely to close in September.
FTSE100 firm to save £300m by the end of 2019, having already saved £650m in past four years
Coming after its January trading statement/profit warning (please refer to our 19 January Latest), Pearson has just announced FY16 OP and EPS slightly ahead of its previous guidance. As expected, sales were down 8% on an underlying basis to £4,552m (AV: £4,407m) mainly impacted by the weakness in North American higher education courseware. The FY16 adjusted OP reached £635m (-21%) compared to AV’s at £630m, and the adjusted EPS declined by 16% to 58.8p versus a 57p guidance (AV at 57.2p). As already announced in January, the proposed final dividend is 34p (overall FY16 dividend at 52p) but the dividend will be rebased from FY17e onwards (we had made the assumption of 26p within our model for both FY17e and FY18e).
Pearson should not have been in portfolios for its dividend. Jackpotjoy listing.
Companies: Intertain GroupPearson
Troubled education publisher says 2017 dividend will have to be cut after US sales decline
Bad news today from Pearson which no longer expects to reach its operating profit goal for FY18e. Instead, OP is expected to be in line with FY16e despite a very bad Q4 (“unprecedented decline in North American higher education courseware business”), enabling a final 34p dividend in line (i.e. 52p as expected for FY16). FY17e will also be far lower than expected, reflecting continued challenges and uncertainty in the North American higher education courseware market, implying that Pearson will have to rebase its dividend from FY17 onwards. The group also said it has plans to exit its 47% stake in Penguin Random to its JV partner Bertelsmann (£1.7bn stake valuation in our NAV), with the target to re-capitalise the business, pursuing required investments and paying dividends.
Research Tree provides access to ongoing research coverage, media content and regulatory news on Pearson. We currently have 112 research reports from 6 professional analysts.
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Future Plc’s FY results revealed the better than consensus growth noted in the trading update last week. Underlying group revenues grew 11% y/y, and 70% on a reported basis to reach £221.5m (FY’18: £130.1m), with organic Media revenue growth of 31% (reported: 134%) to £154.9m (FY’18: £66.3m). EBTIDA margins were 24.6% (FY’18: 15.9%) supported by increased scale and improving product mix. Regionally, US sales grew an organic 40% y/y with US ARPU still at a 38% discount to the UK (FY’18: 48%). EPS growth rose 95% y/y to 47.5p/share, whilst FCF rose >200% to £53.7m. Alongside FY results, management have announced the acquisition of Barcroft Studios (‘Barcroft’), a small independent studio that creates original video content for distribution across owned and operated social sites as well as mass media channels. Total consideration is £23.5m (9.4x LTM EBITDA), of which 40% will be satisfied in shares. Finally, management have also noted that, after a strong Q1, the Group now expects to be materially ahead of full year expectations. As joint broker to Future, we are restricted and can therefore provide factual comment only up to the conclusion of the General Meeting.
The decrease in total advertising revenue slowed in 9 months 19 (-3% vs -5% in H1 19), reflecting a positive trend in Q3 19 (+1%) and corresponding to the high range of guidance (-1/+1%). Online revenue grew significantly (+23% in 9 months 19 vs +18% in H1 19). As expected, ITV Studios benefited from high deliveries of programmes, in particular from ITV America. The 2019 guidance is confirmed and a dividend of at least 8.0p/share was reiterated.
Mirada plc* (MIRA.L, 160p/£14.2m) | Tern plc* (TERN.L, 9.25p/£21.9m) | Character Group (The) plc* (CCT.L, 360p/£77m)
Companies: MIRA TERN CCT
2019E should see the beginning of a recovery phase. Development effort into existing assets and diversification away from gambling should help reduce the volatility seen of late. The free cash flow yield is pricing in no recovery whatsoever.
This has been a good half, seeing growth in registrations, group revenue and renewals, assisted by a full six months of ICM. The increased sales at higher margin has meant H1 adj. EBITDA jumped over 300%; moreover, a key point is approached as renewal revenues now cover almost all costs: partner payments, cost of sales, and opex. Operationally, progress has also been made in resolving the legacy contract issues. MMX remains comfortably on track for our FY 2019 expectations, which remain unchanged. The company remains wary of giving FY 2020 guidance at this stage. However, looking ahead, this is a much more stable operation; a much better quality to the revenue stream, a controlled cost base, legacy issues addressed; and exciting and innovative growth opportunities.
Companies: Minds + Machines Group
XLMedia has announced a Tender Offer to buy back 9.5% of the current issued share capital at 80p per share. If passed at the forthcoming EGM and fully tendered, then the earnings accretion in 2020E will amount to a 12% increase in fully diluted EPS. The company has also confirmed that current trading is in line.
Following continued delays of a Brexit agreement, few sectors within the UK market have remained attractive to investors despite low valuations. One sector which has continued to outperform despite the political drama has been the UK video gaming sector (henceforth UK gaming), which we are fans of. We believe a combination of sector-leading growth, strong cash conversion and timely cyclical positioning support our positive view on the UK video gaming sector.
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Future Plc has announced the completion of an accelerated book build undertaken at 1275p/share (a 6.25% discount to yesterday’s closing price). The announcement of the placing of 8,184,906 (raising £104.4m of gross proceeds) has been made alongside a proposed acquisition of TI Media, the UK-based, print-led consumer magazine and digital publisher. The consideration of £140m for TI Media will also be funded through drawdown of an additional £45m of debt. This acquisition of TI Media is conditional upon 1) shareholder approval; and 2) CMA clearance. Alongside the proposed acquisition and placing announcements is a brief trading update, with revenues expected by management to be at the top end of consensus, and in the region of £220m. As joint broker to Future, we are restricted and can therefore provide factual comment only.
By focusing on Publishing activities and reducing exposure to its Media interests, the announced strategic update should deliver a higher quality business. Investment in Publishing assets will continue and there will be a focus on growth opportunities in the US market. The progressive dividend policy is maintained including a pay-out ratio of 50%+ of net profits.
Future Plc has announced better than expected performance in its FY’19E pre-close trading update driven by a mix of Amazon Prime Day activity and positive underlying momentum in US operations, supported in part by a strong dollar. Integration of recent acquisitions has further increased capacity, supplementing already positive organic audience growth and benefitting margin performance. Top-line outperformance means full year EBITDA is now expected to be materially ahead of current market expectations, and leads us to upgrade forecasts for the second time since July. Revenue expectations for FY’19E are raised 6% to £210m, with EBITDA upgraded to £53.2m (up 10%). We prudently leave FY’20E and FY’21E sales forecasts broadly unchanged for now, although we raise our EBITDA margin expectations by +80bps and +50bps for FY’20E and FY’21E respectively. EPS expectations rise 11%, 4% and 2% for FY’19E, FY’20E and FY’21E respectively. An FY’20E intrinsic value of 1,356p/share offers an attractive 14% upside from current levels, although we now see potential headroom in FY’20E forecasts.
Kape Technologies has reported first half revenue a touch ahead of the guidance given in July’s trading update with Adjusted EBITDA in line with the suggested $5.8 million. The results show strong progress in growing SaaS revenues with the number of subscription users increasing by 24% to over 1 million and the retention rate improving again to a very healthy level. The first half also saw further investment in customer acquisition paying off with ZenMate and Intego – now both fully integrated into the Group - benefitting. New product launches and high-profile successes by Intego’s macOS security analyst team helped augment Kape’s market positioning. We note that this business model continues to enhance Kape’s ongoing revenue visibility and that Kape is growing market share. We make no change to our numbers as the Board expresses confidence in meeting stretching market growth estimates.
Companies: Kape Technologies
Future Plc has today announced the achievement of accelerated earn-out payments related to the acquisition of Mobile Nations in March’19. Deferred consideration of $55m (50% cash/ 50% new shares) becomes payable, with management assuming the achievement of an $11.5m EBITDA contribution from Mobile Nation operations to March’20. Mobile Nations management team will continue to work within Future within the newly created Future Labs, tasked with driving additional organic growth by integrating new initiatives, businesses, tools and processes once they reach a suitable maturity level. Future management continue a strong record quickly bedding down new acquisitions. The modest outperformance in Mobile Nations performance is largely offset by a marginally bigger than expected share base increase. We make no changes to our forecasts however at this time.
Microsoft unveiled the new Surface Duo, which runs on Android, at its annual hardware event on Wednesday. The folding phone features two side-by-side 5.6-inch displays that are connected by a 360-degree hinge. Microsoft said it partnered with Google to “bring the best of Android” to the device, while incorporating elements of Windows 10X, a new operating system meant for hybrid devices. It can also run two different apps at the same time. Specifically, the Surface Neo will rely on a new "Expression" of its Windows 10 operating system called Windows 10X.
Companies: KAPE EYE IMO
YouGov’s final results to end July showed strong revenue growth (+10% underlying) and a 200bp increase in operating margins. The continuing drive is on growing Data Products and Services and focusing Custom Research on more profitable business. The ambitious targets to improve profitability set in the original five-year plan have been met. The new five-year plan to FY23 targets doubling both revenue and adjusted operating profit margin, as well as achieving a 30% CAGR in EPS (25% EPS CAGR in the earlier plan). In this context, the valuation premium to slower-growing peers looks well underpinned.
We are introducing our Best Ideas for 2019 and also review the performance of last year’s picks. We suggest ten solidly financed stocks with good business dynamics that ought to be considered for core portfolio holdings and six UK domestically focused stocks that our analysts believe should perform strongly in the event that uncertainties unwind. We also introduce a new style of research from N+1 Singer which presents a Company’s dynamics and metrics in a clear and concise manner and concentrates on the pivotal issues affecting that Company and an investment decision.
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