Pearson Rounds Off the Year Strongly

Narrow-moat Pearson published a decent full-year trading update, with revenue up around 8% year over year and operating profit up closer to one third. Investors should take comfort in the positive momentum over 2021, but given the brevity of the Jan. 19 update, questions will remain about the direction of travel in the North American higher education courseware business, which has seen continued revenue declines for the last number of years as students shift away from higher-priced textbooks to digital courseware. Despite the uncertainty around the impact of this shift, we see enough in Pearson’s underlying business, supported by its strong ability to generate content and switching costs, to warrant taking a leap of faith. Relative to our GBX 870 fair value estimate, we view the current share price as highly attractive.