Pearson Plc

Pearson Plc (LON: PSON) is a FTSE 100 index listed Company, which provides learning services by providing assessment, content, and digital solutions to universities, colleges, and schools.

Investment Highlights – Pearson Plc – Buy at GBX 557.20

• The Company has a robust balance sheet and strong liquidity position to navigate through an uncertain period.
• As per valuation metrics, Price/Cash Flow and Price/Book Value multiples of the Pearson Plc are currently lower as compared to the corresponding multiples of the Media & Publishing industry. It reflects, shares are undervalued as compared to the industry.
• In the six months, the Company delivered a substantial return of ~ 11.90% and delivered higher returns compared to the benchmark Index (FTSE-100 Index).
• From the technical standpoint, shares were trading well above the short-term support level of 20-day (GBX 541.60) simple moving average prices, which reflects an uptrend in the stock.

Key Risks

• The prolonged closure of schools and test centres could increase liquidity risk.
• Moreover, failure to adopt new technologies can impact the competitive positioning. 

Update on Trading Performance for Nine Months (released on 14 October 2020)

• The Company witnessed an improvement in trend in Q3 FY2020 along with strong performance in Global Online Learning.
• The sales for 9M period declined by 14%, due to the impact of COVID-19, closures of schools and test centres Internationally.
• The Company is executing its strategy well and progressing well with platform development and technology, with a 41% increase in enrolments in Virtual School and a 17% increase in OPM course enrolments.
• The Company has a robust balance sheet and immediately available liquidity of around .£1.6 billion through cash balances and committed facilities.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price to Earnings Approach (NTM) (Illustrative)

Conclusion

In Q3 FY2020, the Company experienced an improvement in trend with support from learners and customers. The performance from Global Online Learning remained strong, driven by a 41% increase in enrolments in Virtual School and strong sales growth in OPM (Online Program Management). PSON remained on track to deliver an outturn in line with market expectations. The Company expect the market to remain uncertain in the fourth quarter, specifically in the International business. The Company has a robust balance sheet with significant liquidity to tackle the challenging times. The stock made a 52-week low and high of GBX 412.08 and GBX 712.60, respectively.

Based on the decent growth prospects, and support from the valuation as done using the above method, we have given a “Buy” stance on Pearson Plc at the current price of GBX 557.20 (as on 14 October 2020, before the market close at 10:05 AM GMT+1), with lower double-digit upside potential based on 22.20x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.).

*Dividend Yield may vary as per the stock price movement.

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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