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Geographical business performanceThe group's North American education business is expected to report "modest revenue growth" at constant exchange rates. The international education business should report "double digit sales growth" and the professional business is forecast to report operating profits significantly lower than in 2011. However, the group stated that it had faced a "dramatic fall in demand with changes to the apprenticeships programme" - as a result of new government legislation - leading to the conclusion that its Pearson in Practise UK adult training business no longer had a sustainable model. The cost of closure and impairments are expected to be approximately £120m. Financial Times GroupThe Financial Times Group is expected to report "good revenue" growth for the full year, in spite of a slow fourth quarter caused by weaker advertising sales.
Learning company Pearson anticipates good revenue growth in 2012 in spite of the 120m pound cost of closing the group's UK adult training business, Pearson in Practice. That comes even after weakness in the key fourth-quarter selling season for higher education, consumer publishing and corporate advertising, as well as the ongoing structural changes in the industry. For the year as a whole, the group stated that it expects to report an operating profit in EBITA (earnings before interest, taxes and amortisation) terms of approximately £935m (Investec: £951m; Pearson: 84.9) and adjusted earnings of approximately 84p per share (Investec: 84.5), broadly in line with the year before at constant exchange rates. Last year the company reported annual operating profits of £942m. The total interest charge to adjusted earnings is forecast by the group to be approximately £50m including a £12m pensions finance credit and Pearson's effective tax rate is expected to be around the low-end of its guidance of 24-26%.
Positive Points: Pearson enjoys strong global market positions. It is both the largest education company and the largest book publisher in the world. Following Pearson and Bertelsmann's announcement of their plans to combine Penguin with Random House, the two companies are seeking clearance for the proposed merger from appropriate regulatory authorities around the world. Pearson has over recent years made acquisitions in Brazil, China, South Africa, Nigeria and India. The board has previously highlighted that it was "benefiting from recent portfolio changes, using the proceeds from disposals to invest in fast-growing businesses in developing economies and digital services."
Negative Points: The FT Group's full-year profits will be significantly lower than in 2011, reflecting the absence of a contribution from FTSE International (£20 million operating profit contribution in 2011) following its disposal and further actions to accelerate the shift from print to digital. The weak state of the physical retail book market is a risk to the publishing industry. The outlook for advertising markets, (for the Financial Times) remains subject to macro-economic conditions. Currency volatility can work both for and against the company. With the group generating approximately 60% of its sales in the US, the movement between the pound and the dollar remains significant.
Trading update: Financial Times and Penguin publisher Pearson said market conditions had remained weak in its key fourth quarter for higher education, consumer publishing and corporate advertising, which it sees continuing into 2013. For 2012, it said it expected to report good revenue growth at constant exchange rates, and an operating profit of around £935 million. Within its North American education business, modest revenue growth is expected and despite a tough year for the US educational materials industry, significant market share gain is anticipated. Elsewhere, the Financial Times group's full year profits were reported as being significantly lower than in 2011, reflecting the absence of a contribution from FTSE International following its disposal. Penguin saw a strong fourth quarter's publishing performance and expects trading to be in line with 2011 levels, in spite of rapid industry change and tough conditions in the physical book retail market
Pearson: Goldman Sachs moves target price from 1550p to 1510p, while a buy rating is kept.
Pearson: Nomura moves target price from 1250p to 1270p; reduce rating unchanged.
Pearson, the FTSE 100 media group, is planning to explore a sale of the financial daily newspaper within months, Bloomberg reported, so that the company can focus on its fast-growing education division. Dame Majorie Scardino, the chief executive of Pearson, once said famously that the FT would be sold “over my dead body”. But sources said the company had decided to start the sale process before she steps down at the end of the year. Investment bankers and analysts have been predicting the FT’s sale since Dame Marjorie announced her retirement. Her successor, John Fallon, has refused to rule out a sale, The Telegraph says.
Pearson: Jefferies raises target from 1,265p to 1,315p, hold rating kept.
Pearson: Panmure Gordon cuts target from 1,300p to 1,125p, hold rating kept
jange go for it
Pearson: Investec maintains hold rating and 1,240p target.
Pearson said its digital and services businesses continued to grow, with sustained momentum in English language schools in China, school services in India, higher education in South Africa and school learning systems in Brazil. However, textbook publishing remained generally weak, particularly in markets where purchases are publicly-funded. "We have confidently reiterated our guidance because many of our businesses are going strong in this complicated trading environment," said Chief Executive Marjorie Scardino. "But the dynamics of the markets we're in could make that achievement more about resilience than flamboyance. "As always, all the people in Pearson have their shoulders to the wheels that turn in our important fourth quarter," she said.
Financial Times owner Pearson said it was sticking with its full year outlook of growth in sales and operating profits despite tough conditions. The company said that sales were up 5% and operating profit down 5% in the first nine months of the year. Sales were driven by good growth at International Education and the FT Group and a 'resilient' performance in North American Education. The drop in operating profits reflected the sale of FTSE in 2011, acquisition integration costs and continued weakness in UK professional training, the firm said. At Penguin, which the firm is merging with Random House, sales were down 1% compared to 2011, however the third quarter saw ebook revenue rise 35% on 2011. Its Professional Education division struggled, with the take-up of new training programmes being slower-than-expected. As a result, the company expects full-year profits in Professional Education to be significantly lower than in 2011. The highlight was International Education, where sales were up 13% after nine months.
Pearson said its digital and services businesses continued to grow, with sustained momentum in English language schools in China, school services in India, higher education in South Africa and school learning systems in Brazil. However, textbook publishing remained generally weak, particularly in markets where purchases are publicly-funded.
"The regulatory barriers are less material [to the potential News Corporation deal] than the Random House merger option, the exit immediate and the consideration cash." Under the terms of the deal neither Pearson nor Bertelsmann may sell any part of their shareholding in Penguin Random House for three years. Pearson also announced its nine month figures, saying it was sticking with full year sales predictions and operating profits despite tough conditions. The company said that sales were up 5% and operating profit down 5% in the first nine months of the year. Sales were driven by good growth at International Education and the FT Group and a 'resilient' performance in North American Education. The drop in operating profits reflected the sale of FTSE in 2011, acquisition integration costs and continued weakness in UK professional training, the firm said. Its Professional Education division struggled, with the take-up of new training programmes being slower-than-expected. As a result, the company expects full-year profits in Professional Education to be significantly lower than in 2011. The highlight was International Education, where sales were up 13% after nine months.
Marjorie Scardino, Chief Executive of Pearson, said the combination would "greatly enhance" Penguin's fortunes and its opportunities. The company said the combined organisation would have a stronger platform and greater resources "to invest in rich content, new digital publishing models and high-growth emerging markets". It also said there would synergies from shared resources such as warehousing, distribution, printing and central functions. But the merger was not met with quite such enthusiasm by some company analysts. There had been reports that News Corporation, owner of HarperCollins publishing house, had joined the race with a bid for Penguin worth in the region of £1bn. David Reynolds at Jefferies International said he "much preferred" this outcome to the Random House merger. "We see book publishing, like newspaper publishing as particularly challenged by digital disruption," he said.
Financial Times owner Pearson drifted lower after it announced the merger of Penguin books and rival publisher Random House. The deal would create a firm responsible for publishing a quarter of English language books worldwide. The news came as Pearson released figures that showed in the first nine months of the year Penguin revenues fell 1% compared to the same period in 2011. Under the terms of the agreement, Penguin and Random House will combine their businesses in a newly-created joint venture named Penguin Random House. However, it will not be a merger of equals, with Random House's parent firm, Bertelsmann, to own 53% of the joint venture and Pearson taking 47%. Bertelsmann will nominate five directors to the board of the new company and Pearson will nominate four.
Positive Points: Pearson and Bertelsmann agree to combine Penguin and Random House, creating a world leading trade publisher and marks the first tie-up between the world’s six global book publishers. Management reiterated its previous full-year outlook of growth in sales and profits at constant exchange rates. This will be supported by what is traditionally busy fourth quarter in education and consumer publishing. Pearson enjoys strong global market positions. It is both the largest education company and the largest book publisher in the world. Pearson has over recent years made acquisitions in Brazil, China, South Africa, Nigeria and India. The board has previously highlighted that it was "benefiting from recent portfolio changes, using the proceeds from disposals to invest in fast-growing businesses in developing economies and digital services." The group's dividend policy remains progressive.
Negative Points: Uncertainty over potential national and local government spending cuts in the US continues to cast a shadow over the group's Education business. Textbook publishing remained generally weak, particularly in markets where purchases are publicly-funded, said the group. The weak state of the physical retail book market is a risk to the publishing industry. The outlook for advertising markets, (for the Financial Times) remains subject to macro-economic conditions. Currency volatility can work both for and against the company. With the group generating approximately 60% of its sales in the US, the movement between the pound and the dollar remains significant.
Financial Highlights: Pearson increased sales by 5% in the first nine months of 2012, with good growth at International Education and the FT Group and a resilient performance in North American Education. Operating profits were 5% lower, reflecting the sale of FTSE in 2011, acquisition integration costs and continued weakness in UK professional training. As at 30 Sept, net debt stood at £1.1 billion due to acquisitions ( £499m at the beginning of the year).
Interim statement: Pearson reiterated its full year outlook of growth in sales and operating profits, in spite of challenging conditions. The company said that sales were up 5% and operating profit down 5% in the first nine months of the year. Sales were driven by good growth at International Education and the FT Group and a 'resilient' performance in North American Education. The drop in operating profits reflected the sale of FTSE in 2011, acquisition integration costs and continued weakness in UK professional training, the firm said. A separate announcement revealed Bertelsmann, the German media company and Pearson are merging Random House and Penguin, their respective publishing units, in what is seen as a response to the rapid changes seen within the evolution of ebooks. The joint venture, to be known as Penguin Random House will see Bertelsmann own 53% of the joint venture and Pearson, 47%.
Company overview Pearson is one of the world's major publishing groups, with a series of publishing brands (Penguin, Dorling Kindersley, the Financial Times, Prentice Hall, Scott Foresman, Longman and many others). The conglomerate is focused tightly on three core businesses: 1) Education 2) The Financial Times Group 3) Penguin Consumer Books. The group operates from 60 countries and has over 30,000 employees.
Matthew Walker, Analyst at Nomura He retains a 'reduce' rating and a target price of 1,250p, saying: "On balance we would see this as good news for Pearson for several reasons: 1) Investors and analysts don't like the consumer books industry which has low or no growth, high capital intensity and low margins. It has an uncertain structural future in the face of e-books and self publishing. The exit multiple for anyone buying into books is very uncertain. 2) The sales of Random House are around £1.4bn versus Penguin's sales of around £1bn, providing a reason why Bertelsmann might have a majority of the possible joint venture. Depending on certain factors, this might allow Pearson to deconsolidate Penguin. With negative organic growth, Penguin by our calculations represents a drag on organic growth of around 50 basis points. 3) There may be synergies in combining the two companies in marketing, staffing, warehousing and printing and distribution. In our view, the downside is that a joint venture is not as good as a sale, suggesting there may not be a bidder at the price required for the Penguin asset. We will review our forecasts if and when a transaction is announced and terms become clearer."
News of the possible merger between Random House Publishing and Penguin has prompted a couple of notes from brokers on Pearson. Alex DeGroote, Analyst at Panmure Gordon DeGroote has a 'hold' recommendation and 1,300p price target, saying: "We see this potential deal as a defensive industry merger, based on increased scale and cost synergies, but not overly material to the investment case." He adds: "Pearson is one of the worst performing mid/large UK media caps this year. Earnings momentum has been negative as a result of increased profit and loss spend, and the net effect of Pearson mergers and acquisitions. However, at these levels there should be some yield support for the shares. In terms of the break-up, we imagine the market expected corporate activity around the FT, rather than Penguin." Steve Liechi, Analyst at Investec Liechi maintains his 'hold' rating and 1,240p target price, saying: "We view this as a possible net positive but not a game changer - while we see some earnings per share upside via near-term merger/cost synergies in a pressured top line business, this does not imply cash returns to shareholders or re-investment in long-term growth Education assets."