Pearson nudges up guidance, but Nomura underwhelmed -UPDATE
Penguin books and Financial Times publisher Pearson has nudged up earnings guidance for 2011 after finishing the year with a flourish.
Penguin books and Financial Times publisher Pearson has nudged up earnings guidance for 2011 after finishing the year with a flourish.
The group said that 2011's earnings per share should be in the region of 85.25p, up from 77.5p in 2010 and ahead of previous guidance of earnings of around 83p per share (market consensus: 83.12p).
Despite the upgrade, the market was underwhelmed, and the shares eased in early trading to 1,234p, down 12p on the day.
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The group said it continues to benefit from rapid growth in digital services and its increasing presence in emerging markets, while management also gave itself a pat on the back by attributing some of the boost to the "continuing transformation" of the group's business portfolio.
For the year as a whole Pearson generated around £2bn of digital revenues and about £600m of revenues in emerging markets. The consensus among investment analysts following the company is that 2011 revenues for the group will be around £5.91bn.
Pearson said its education division in North America continued to grow market share but the market is clearly a tough one. The emphasis on growing market share rather than revealing profit performance is usually a tell-tale sign, and despite boasting of rapidly growing demand for digital learning Stateside and the resilient showing of its education technology and services businesses, the group did admit that market conditions in the school and higher education publishing industries in the US were weak.
As for the International education business, the bright spots were developing markets, digital learning, assessment and English Language Teaching, but macroeconomic pressure in developed markets resulted in school publishing remaining generally subdued. The professional education business grew in the fourth quarter, with good growth in Professional Testing and digital publishing, Pearson said.
The Financial Times Group is set to report good growth in 2011 on the back of growing digital and subscription-based revenues at both the Financial Times and Mergermarket.
The Penguin book publishing business had a strong Christmas and will report "solid" results.
Commenting on the results after their release, Nomura has decided to maintain its reduce rating on Pearson, despite the publishing giant having raised earnings guidance on Thursday.
According to Nomura, "The organic growth rate we think is unlikely to much exceed 1% for FY11 (vs. our current 2% forecast), and tough conditions in North American education owing to budget shortages are likely to persist into 2012 and so organic growth in 2012 is likely to be flat to slightly down, in our view."
The broker maintains its negative view on the stock, noting that the valuation is high at a price-to-earnings (FY12E) multiple of 14.6.
As of 11:46am shares of Pearson are down by 3.1% to 1,207p.
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