Pearson plc Outperforms Sky PLC, ITV plc, Rightmove Plc And Auto Trader Group PLC After Trading Update

Pearson plc (LON:PSON) has risen by more than Sky PLC (LON:SKY), ITV plc (LON:ITV), Rightmove Plc (LON:RMV) and Auto Trader Group PLC (LON:AUTO) in 2016


Pearson plc (LON:PSON) (LSE:PSON.L) has released an interim management statement for the first nine months of its financial year. It has reiterated its 2016 guidance and its 2018 goals are unchanged.

Pearson’s competitive performance has been good and its growth and simplification plan is on track. As has been the case in previous years, Pearson’s operating environment has proved challenging. Its sales for the first nine months of the year declined by 7% in underlying terms. This was because of the expected declines in assessment revenues in the US and UK. It was also due to declines in North American Higher Education courseware, caused by a further inventory correction by retailers in July and August.

However, Pearson has benefitted from favourable exchange rates. If current exchange rates persist until the end of 2016, its EPS guidance range will increase by 4.5p to 54.5p-59.5p.

Pearson’s growth and simplification plan is proceeding as planned. More than 90% of the targeted reduction in headcount of 4,000 full-time equivalent employees have been notified of exit. Pearson still expects to incur restructuring costs of £320 million in 2016 and to generate annualised savings of £350 million.

Pearson’s share price has risen by 2.5% in 2016 in what has been a tough year for the media sector. Pearson’s performance has been ahead of sector peers Sky PLC (LON:SKY), ITV plc (LON:ITV), Rightmove Plc (LON:RMV) and Auto Trader Group PLC (LON:AUTO). Sky is down 24%, ITV has declined by 37%, Rightmove is 5% lower and Auto Trader has slumped by 15% in 2016.

In my view, Pearson has investment appeal. Its business model is improving and a weaker pound could help to improve its near term outlook. There is still a long way to go with its turnaround strategy but I believe that its shares will continue to perform relatively well over the medium term.

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