Morningstar | Pearson Books a Solid 3Q
Narrow-moat Pearson published a solid set of nine-month results with underlying revenue flat year on year as the decline in revenue for U.S. higher education courseware (negative 3%) was offset by growth of other business within the portfolio. Management reiterated full-year guidance of adjusted operating profit in 2018 in the range of GBP 520 million-GBP 560 million. As results are largely in line with our expectations, we do not expect to make any material changes to our forecasts or to our GBX 800 fair value estimate, and we believe the shares are currently fairly valued.Divisionally, performance was quite mixed. North America, which generates two thirds of group revenue, reported flat revenue on an underlying basis over the period. Declines in school and higher education and LearningStudio were offset by strong enrollment growth in online program management, or OPM, and the launch of a contract to administer medical college admissions tests within the professional certification segment. In Pearson’s core business, revenue rose by 2% over the period, primarily due to a better performance in PTE Academic and OPM services in Australia and the U.K. Lastly, the growth division witnessed revenue declines of 4% in the first half against tough comparatives, with South African school courseware declines preannounced.
While investors may take these results as tangible proof of management’s successful implementation of their turnaround strategy, it is clear that the business is still facing pressures across numerous businesses and is not yet out of the woods. Ultimately, Pearson generates and owns the content it sells, which is the basis for its narrow moat rating; however, we are mindful of the risk/reward equation, and at this point in time we believe the market is not offering "a fat pitch".
Pearson is engaged as a learning company. Co. provides content, assessment and digital services to schools, colleges and universities, as well as professional and vocational education to learners to help increase their skills and employability prospects. Co.'s content includes: Bug Club, a school phonics reading programme for children; and enVisionMATH2:0, a maths curriculum. Co.'s assessment includes its U.K. qualifications, which is an awarding body, offering both academic and vocational qualifications. Co.'s services include its online programme management, which partner with colleges and universities to extend the reach of their degree programmes by scaling online.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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