The former Financial Times owner saw its shares spike just under 7% to £6.63p after forecasting higher profits for the year.
Favourable tax movements and ongoing restructuring efforts offset a 2% decline in underlying group sales, prompting the academic publisher to raise the lower limit of its profit guidance from £546m to £576m. Its upper guidance remained constant at £606m.
The publisher’s rosier third quarter prognosis was good news for Train, whose investment firm Lindsell Train owns a 5.03% stake in Pearson, as well as Schroders Investment Management, which owns a 12% stake.
Train, in particular, has stuck by Pearson through a tumultuous year of ups and downs, in what the star manager called a “mortifying” experience.
Year-to-date, its share price has fallen close to 19%, as investors rallied against news of its struggling higher education business, as well as its decision to sell off a sizeable stake in one of its most commercially successful businesses, Penguin Random House, and rethink its dividend policy.
By mid-morning, Train’s Finsbury Growth Income Trust was trading marginally lower (-0.45%) at £7.54p per share, dragged down by volatility in the share price of his largest holdings, Unilever and Relx, which make up 10.5% and 10% of the fund respectively.
Digital transformation
Pearson’s performance in its historical stronghold, the North American education market, continued to be lacklustre, with sales in the region declining 4% generally and US higher education courseware revenue dropping by 1%.
However, its digital courseware business showed promising potential stateside, as revenue grew 11% over the period.
Pearson reported in its interim results that it was investing between £700m and £750m per year in its self-proclaimed “digital transformation”.
Likewise, its progress in “growth” markets, like South Africa, China and the Middle East, yielded 3% higher sales.
“We’re focused on being the long-term winner in digital learning and creating sustainable value for our shareholders,” explained Pearson’s chief executive, John Fallon.
“We continue to invest in growing market opportunities, gaining share with our digital transformation, and becoming simpler and more efficient. With good cash generation and a strong balance sheet, we are going to return £300 million in surplus capital through a share buyback.”
By the end of the third quarter, net debt was down from £1.4bn the year before to £1.3bn, following a lower dividend payment and good operating cash flow.
But, Fallon reiterated to shareholders: “We expect tough market conditions in our biggest business to continue over the next couple of years.”
