Pearson Plc - A Multinational Media Company with Well-Positioned Balance Sheet

Pearson Plc (LON: PSON) is operating as a multinational education and publishing company, catering the private and public institutions, the governments, and individual learners.

Trading Update with Improved Digital Growth (Q1 Financial Year 2020)
On 24th April 2020, Pearson released an update on the trading performance in the first quarter of the FY2020. The group has revised its future expectations and reported a decline of 5 per cent in the revenue versus the previous year due to Covid-19 outbreak. The company experience disruption in its International divisions and Global Assessment due to the closure of testing centres and revenue declined by 10 per cent and 3 per cent, respectively. The company’s revenue from Global Online Learning surged by 6 per cent for the period. The company, with GBP 0.8 billion of liquidity has a strong financial position at the end of March and secured an additional Revolving Credit Facility.

Share Price Performance

Daily Chart as of15^th May 2020, after the market closed (Source: Refinitiv, Thomson Reuters)

Pearson Plc shares closed at GBX 425.00 at the time of writing after the market close on 15^th May 2020. Stock's 52 weeks High is GBX 951.20 and Low is GBX 412.08.

Valuation Methodology

*Peers: Ascential Plc, Future Plc, Goco Group Plc, Informa Plc and WPP Plc.

Growth Catalysts
The group has a robust balance sheet with a strong financial position. The company continue to make an investment in the Pearson Learning Platform, which will help the company to increase its operational and financial performance in future.

Conclusion
In the first quarter of the financial year 2020, the group revised its guidance for FY2020 and witnessed a decline in the revenue with an increase in net debt. The group’s business has been diversified into multiple geographies and has a strong balance sheet and adequate liquidity. The group’s 2020 product road map remained on track and continuing to make an investment in the Pearson Learning Platform. The effective measures are taken by the company to protect its financial position and reduce its costs. The group witnessed an increase in the online learning business and continue to make an investment to improve it further for future growth. The group continue to monitor the impact of COVID-19 and will take decisions to safeguard the interest of shareholders. The company’s board is confident in its long-term strategy and is confident to become a global leader in the online learning market.

Based on the decent prospects and support from the valuation as done using the above method, we have given a “BUY” recommendation at the closing price of GBX 425.00 (as on 15^th May 2020) with single-digit upside potential based on 12.70x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).

International Personal Finance Plc - Long Track Record of Generating Decent Returns

International Personal Finance Plc (LON: IPF) is a financial services company, which provides consumer finance and home credit with over 2 million customers and 19,600 agents.

Recent News
On 12^th May 2020, International Personal Finance confirmed that it had repaid 6.125 per cent bonds of GBP 44,098,100.  

Q1 FY2020 Trading Update and actions taken to Tackle the Impact of Covid-19
On 30^th April 2020, International Personal Finance released an update on the developments regarding the Covid-19 pandemic. The Group reported that credit issued contracted by 15% in the first quarter (year-on-year) of 2020. However, the net cash flow was reported positive in April to date. Considering the unprecedented challenges presented by Covid-19 infection, the group has planned to save GBP 52 million through cost reduction in 2020. It has decided to suspend the final dividend for 2019, which would generate a saving of GBP 17 million. Despite the uncertainty, the company has delivered a strong balance sheet. As at 31st March 2020, the company had headroom on undrawn debt facilities of £217 million and 47.6% of equity to receivables capital ratio.

Share Price Performance

Daily Chart as of15^th May 2020, after the market closed (Source: Refinitiv, Thomson Reuters)

International Personal Finance Plc shares closed at GBX 40.10 at the time of writing after the market close on 15^th May 2020. Stock's 52 weeks High is GBX 179.80 and Low is GBX 32.55.

Valuation Methodology

*Peers: Paragon Banking Group Plc, Arrow Global Group Plc, Provident Financial Plc and OneSavings Bank Plc.

Growth Catalysts
The company had shown growth in issued credit from its IPF Digital business with good credit quality. The company’s Europe based home credit market had shown strong financial performance and operational execution.

Conclusion
The Group reported a solid performance during the first 10 weeks of 2020, and performance was in line with the management’s expectation. Currently, the group operations are impacted by the outbreak of coronavirus, and the group witnessed a decline in the number of customers. Despite the uncertain environment, the company is confident towards its strategy as it supports growth and addressing the demands of its customers and shareholders. The group isinvesting in European home credit businesses to improve its offering to retain and attract customers with enhanced efficiency. IPF is focused on improving its operational performance from Mexico home credit business, which will deliver higher growth and profitability in the financial year 2020. Moreover, the group is operating at a strong balance sheet and funding position, which will help them to recommence growth when the short-term disruption subsides.

Over the past four years (FY15 - FY19), the company’s net income surged from GBP 735 million in FY15 to GBP 889 million in FY19. Compounded annual growth rate (CAGR) stood at 4.87 per cent.

Based on the decent growth prospects, we have given a “Hold” recommendation at the closing price of GBX 40.10 (as on 15^th May 2020).

Gem Diamonds Ltd – Leading Producer of Diamonds with High-Value
Gem Diamonds Ltd (LON: GEMD) is a mining company based out of the UK. The company owns Ghaghoo mine in Botswana and Letšeng diamond mine in Lesotho.

Recent News
On 24th April 2020, Gem Diamonds announced that it would re-open the Letšeng mine on April 27, 2020.

Q1 Trading Update – Reflecting Positive results of the Flexible Tender Sales Process
On 21st April 2020, Gem Diamonds provides the trading update for the period from 1st January 2020 to 31st March 2020. In the first quarter of 2019, the company has delivered a decent performance, with revenue of US$47.3 million versus US$51.3 million in Q4 FY2019, the average price of US$1,615 per carat, and Carats sold were 29,298 versus 29,945 Q4 FY2019. During the period, the company has sold 11 diamonds for over USD 1 million of cash, which generated revenue of US$20.7 million. The group also delivered a decent position in the balance sheet, with US$21.7 million of cash on hand and net debt position of US$21.5 million. The Group has US$33.6 million of available additional facilities.

Share Price Performance

Daily Chart as of15^th May 2020, after the market closed (Source: Refinitiv, Thomson Reuters)

Gem Diamonds Ltd shares closed at GBX 29.20 at the time of writing after the market close on 15^th May 2020. Stock's 52 weeks High is GBX 92.00 and Low is GBX 27.00.

Valuation Methodology

*Peers: Glencore Plc, Kaz Minerals Plc, Anglo American Plc, and Sylvania Platinum Ltd.

*Currency Exchange Rate Taken for 1 USD = 0.82608 GBP.

Growth Catalysts
The group is confident that the Letšeng will be able to hastily ramp-up to full production once the lock-down period is ended and it is safe for all the contractors and employees to return to a site. The company will also optimise its operations for business transformation to repay the debt taken by the company. 

Conclusion
During the current period, Letšeng's mining progressed well. The company showed a positive result of the flexible tender sales process. In the current scenario, the group and industry are facing extremely uncertain and challenging international conditions. In the medium to long term horizon, rough diamond prices are anticipated to be endorsed by the favourable demand or supply fundamentals. In the short-term scenario, the supply is anticipated to decline with the depletion of current mines and outbreak of COVID-19. The construction work to extend the tailings storage facility progressed well during the Period. The company will implement its mine plan in the FY2019 to reduce the cost and increase productivity. Letseng has been permitted to re-open following the three-week lockdown, reflecting the growth in the upcoming results.

Based on the decent prospects and supported by valuation undertaken using the above method, we have given a “Speculative Buy” recommendation at the closing price of GBX 29.20 (as on 15^th May 2020) with lower double digit upside potential based on 13.00x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).
 
*The “Buy” and “Speculative Buy” recommendation is valid for the current price as covered in the report (as on 18^th May 2020).
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.
References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.
This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.
The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.
Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.