Pearson Plc stocks register a new 52-week low today, amid concerns over next year profits!

  • Jan 16, 2020 GMT
  • Team Kalkine
Pearson Plc stocks register a new 52-week low today, amid concerns over next year profits!
  • Sally Johnson to succeed Coram Williams as Chief Financial Officer of the Pearson Plc
  • Business segments generating 76% of the group's total revenue, grew 4% in aggregate on a YoY basis.
  • Shares tumbled more than 6% to GBX 579.20 as on January 16, 2020.

Shares of Pearson Plc (LON: PSON) took a nosedive on January 16, 2020 trading session and plummeted approximately 39.20 points or 6.34% to GBX 579.20 (at the time of writing at 12:53 PM GMT, before the market close), as the group reported that its chief financial officer has stepped down from his position and expects profit to slump in FY20.

The group reported that its full-year FY19 results would be out on 21st February and expected adjusted operating profit to be at the lower range of £590m to £640m as guided previously.  Revenue of its Higher Education Courseware for US, which accounted for 24% of the group's revenue has declined approximately 12%. The weaker performance in this segment was largely driven by decoupling of print and digital products for digital-only formats as students progressively depend on the implanted eBook in the platform based MyLab and Mastering products.

Sales of bundle units plunged 45% in the FY19, driven by plummeted buying interest of physical inventory by campus bookstores. However, this trend has resulted in good eBook growth. Also, the plummeting buying interest by campus bookstores for physical inventory due to a paradigm shift in the students' behaviour, with over 50% of them now choosing an eBook over a physical textbook. However, this has facilitated decent growth in e-book distribution.

The balance sheet of the group remained robust, however closing net debt at the end of FY19 would be modestly higher than net debt reported at the end of the FY18 on a post-IFRS 16 basis. Also, a £350m share buyback programme is estimated to kick start today.

On FY20 outlook, the group stated that it is expected that full-year FY20 adjusted operating profit to come in the range of £500m to £580m, which would include a 25% interest in Penguin Random House. Also, it expects that businesses which are generating 76% of the group's revenue would sustain a growth rate of lower single-digit in aggregate — however, growth in its OPM, Connection, Professional Certification and PTE-Academic will continue in FY20.

Also, performance of the business segment which generates approximately a quarter of the group’s total revenue (US Higher Education Courseware) would extend prevailing trend with a substantial decline in print partially offset by modest growth in digital as more products continue to be added to the GLP.

However, digital revenue would accelerate as product release from the end of FY20 is set to accelerate.

Meanwhile, the chief executive officer of the group John Fallon said that during the FY19 the group witnessed a flat revenue growth and recorded operating profit within the guidance range. The weaker performance of the group was mainly on account of the lower sales in US Higher Education Courseware; however, this was partially offset by the decent performance of the broader 76% of the group.

Recently in December 2019, the learning company of the world reported that an agreement to divest the remaining 25% stake of the group in Penguin Random House has been formalised with Bertelsmann SE & Co KGaA. The transaction would be executed for an approximate consideration of £530m or US$675m. However, the potential deal is subject to the approval of the regulatory authority, which is expected to come in by the first half of 2020.

The transaction valued Penguin Random House for an enterprise value of $3.67 billion against the enterprise value of $3.55bn in 2017 when it liquidated a 22% stake in the joint venture.

John Fallon, who joined the group in 2013 as the chief executive officer has successively divested the group’s interest in Penguin, the Financial Times and The Economist as he targeting to transform Pearson Plc as pureplay education services company.

However, despite a concentrated focus on pureplay education services, the group's performance was adversely affected by plunging university textbook sales in the UK. A decade ago, it distributed approximately 21 million textbooks in USA, which has now plummeted by more the 80%.

Stock Performance

Over the past year, shares of the £4.8bn market-cap media publishing company have plummeted more than 36% and tumbled approximately 11% and 6% in the past three months and in a month -ago period, respectively. This reflects that the stock is undergoing through a tough phase.

Also, in the day’s trading session post the company reported its trading update for full-year FY19 and FY20 guidance, PSON stocks plunged more than 13% during the early trading hours and registered a new 52-week low of GBX 532.60 (before the market close). However, the stock clawed back some of the losses it incurred in the early trading hours of the day and at the time of writing, the stock traded approximately 39.20 points or 6.34% lower at GBX 579.20.

Also, from a technical standpoint, at the current traded level, its shares traded well below its short-term and long-term crucial support levels of 5-day, 10-day, 20-day, 50-day, 100-day and 200-day simple moving averages (SMAs), which is typically considered to be an unfavourable trend in a stock. Also, the 14-day and 9-day Relative Strength Index in the stock stood at 27 and 24, reflecting that the stock is hovering in a steep sell zone.

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