One to Watch

PEARSON is an international media company with leading positions in education, financial information, and consumer book publishing.

The education division (around 66 per cent of revenues) operates mainly in the US and provides curriculum materials and both assessment and testing products to schools and colleges. Penguin (about 18 per cent) publishes consumer books in the US and UK, whilst the FT Group (some 16 per cent) includes the Financial Times newspaper alongside a number of other titles and data services.

Recently released full-year results for 2009 exceeded market expectations and highlighted the resilient nature of Pearson's business. The North American education division performed particularly well with organic sales growth of 5 per cent. The company has been active in the structural shift from print to digital products and has developed leading learning technologies for students.

A difficult operating environment saw revenues decline by 3 per cent for the FT Group, which derives a majority of revenues from digital products and services. Despite this, operating margins in excess of 20 per cent have been maintained and demand for the division's products remains robust.

We believe that Pearson's current stock price does not fully reflect either the defensive qualities of the educational business, nor its potential for further growth. Increasing adoption of digital educational tools and market share gains will continue to benefit the education division. In addition, the continued weakness of sterling against the dollar will enhance profitability. Efficiency gains across the company will provide another fillip to Pearson's operating margins.

This article is for information and discussion purposes and does not form a recommendation by the manager to invest or otherwise.

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