Pearson Sinks as Investors Pan Dividend Plans After Penguin

Jul 13, 2017 by

[Finally we are seeing Pearson go down in financial ashes. It is Pearson that teamed up with Obama and his miserable Common Core to indoctrinate millions of students into the social justice agenda.  – Donna Garner]

Pearson Plc will allocate fewer resources to its dividend than some investors expected after a partial sale of its stake in book publisher Penguin Random House, raising concerns that the U.K.-based company may require more funds to prop up its balance sheet.

The shares fell as much as 8.3 percent, reversing earlier gains following the announcement that Pearson agreed to sell a 22 percent stake in the publishing venture to majority owner Bertelsmann SE for about $1 billion. While Pearson will use almost $400 million to buy back stock, its plans for an ongoing dividend struck investors as overly cautious. The share drop was the biggest in three months for the company, which has been struggling with its main education testing and textbook publishing business.

Pearson executives are signaling a lack of faith in the company’s financial strength, Liberum analyst Ian Whittaker said in a research note. Based on comments from a conference call, he expects an annual distribution of about 16 pence to 17 pence, which would generate about a 2 percent yield.

A payout that low “will deter income investors but also would seem to suggest that Pearson is concerned over the need to protect its balance sheet moving forwards,” Whittaker said.

Pearson fell 4.6 percent to 659 pence at 3:59 p.m. in London. It had advanced as much as 3.3 percent earlier.

“We are 100 percent focused on setting a future dividend that is sustainable, progressive and comfortably covered by earnings,” said Tom Steiner, a Pearson spokesman. “Ultimately this will drive long-term value creation.”

The company said Tuesday that the share buyback would return about 300 million pounds ($386 million) of surplus capital to shareholders after the Penguin sale, while Pearson keeps a 25 percent stake in the iconic book publisher.

Pearson Chief Executive Officer John Fallon has been unable to shake skepticism in his plan to transform the education company to a digital-first strategy. The company sold the Financial Times and its stake in the Economist to invest in the education business, which focuses on testing and textbook publishing. The business has faced challenges in the U.S., where college enrollment has fallen and online learning and rentals are putting pressure on textbook sales.

“What’s become painfully clear is that education is one of those sectors where it’s harder to go digital and make money out of it,” Jonathan Helliwell, an analyst at Panmure Gordon, said by phone. “It’s taken them a long time to realise that they should just focus on commercial parts of the market, rather than trying to do everything.”

Shareholders suffered the biggest drop on record in January, when Pearson issued a profit warning and forecast years of gloom in the U.S. market. Pearson has since announced plans to cut costs by 300 million pounds by 2019.

Pearson’s biggest problem is in its U.S. higher education business, which will be responsible for a higher share of profit generation once the sale of the Penguin stake and the company’s U.S. K-12 business is completed, said Whittaker, who rates the company sell.


Source: Pearson Sinks as Investors Pan Dividend Plans After Penguin – Bloomberg

Print Friendly, PDF & Email

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.