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Not Out Of The Wood Yet, But…

17 October 2017 by lberuti

PSON ( Pearson Plc ) gave a trading update this morning, which went down well with investors. Despite challenges (revenues fell 2% in the first nine months of the year), owing to the relative strength of the US higher education business as digital revenues increased 11% and the division rallied from last year’s unprecedented slump, the company was able to narrow its full year guidance towards the upper end of its previous estimates. 2017 cash flow and the bottom line will benefit from lower taxes (16% versus an initial 21% guidance) and from a reduction in financial expenses. Net debt at the end of the third quarter was a touch lower than it was at the end of 2016, even before taking into account the sale of PSON’s 22% stake in Penguin Random House finalised in October, thanks to good cash-flow generation and the off-loading of the Global Education Business. Also, a third of the publisher’s pension liabilities were off-loaded to Aviva and Legal & General through a bulk annuity deal. There is still some way to go improve the metrics to levels that are commensurate with the current BBB rating, but the commitment of the management to improve the balance sheet was rewarded with a further reduction of PSON’s 5-year risk premium to 88bps, almost 60bps off the peak reached at the very beginning of 2017.