The Pearson (LSE: PSON) share price fell 4% today (29 July) after the FTSE 100 education company posted its interim results for the six months to 30 June.
Still, at 1,004p, the share price is more than double where it was in 2020 during the dark days of the pandemic. Longer term, it’s been hit and miss, rising 21% in five years but falling 11% over a decade.
Here, I’ll consider whether I’d be interested in buying this Footsie stock.
The results are in…
In the first half, Pearson reported sales of £1.75bn. That was down 7% from the year before, but up 2% on an underlying basis when stripping out disposals. Underlying adjusted operating profit grew 4% to reach £250m, while free cash flow increased by £77m to £27m.
The firm said each of its five divisions performed in line with expectations:
Assessment & Qualifications sales grew 2%
Virtual Learning declined 1% due to contract losses
Higher Education fell 2%
English Language Learning rose 11%, with strong growth at Pearson Test of English (PTE) and Mondly (a language learning app)
Workforce Skills sales grew 6%, helped by strong performance at Credly (a digital credentialing platform)
Management reiterated guidance for the full year and 2025. That would represent flat top-line growth in 2024 and a slight increase next year. However, profits should rise by double-digits as the firm benefits from efficiency savings.
Meanwhile, a 6% increase in the interim dividend was proposed, and 81% of a £200m share buyback programme was completed, as of 30 June.
Pivot to the future
We’re constantly hearing about the possible mass loss of jobs to AI. So, I’m interested in education companies, as these could experience significant growth by helping workers retrain with new skills and qualifications.
The irony is that I fear AI could also disrupt the education platforms themselves. I’ve long been bearish on Chegg, a US digital learning rival to Pearson. Students are increasingly using free AI bots like ChatGPT for answers rather than paying for subscription services. That genie is well and truly out of the bottle!
However, Pearson is a more diversified company, offering text books, tests and certifications, and learning platforms. I don’t see any evidence of ChatGPT-shaped disruption in the numbers today. But it could become more of a risk to parts of the business in future.
CEO Omar Abbosh actually sees AI becoming a powerful tailwind: “Significant demographic shifts and rapid advances in AI will be important drivers of growth in education and work over the coming years, and this plays to Pearson’s strengths as a trusted provider of learning and assessment services.”
Bargain territory?
The stock is trading at around 16 times forward earnings — in line with its historical average. So it’s hardly a bargain, but also not expensive. The dividend yield is 2.2%.
I found the H1 sales performance underwhelming. Longer term though, I’m now considering whether Pearson might be the best-placed firm to benefit from potential job disruptions caused by AI. I’m interested.
The post The Pearson share price dips 4% on H1 results! Is this now a FTSE 100 bargain? appeared first on The Motley Fool UK.
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Ben McPoland has no position in any of the shares mentioned. The Motley Fool UK has recommended Pearson Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
