Pearson's growth potential not baked into share price, says ShoreCap

Shares in the educational publisher have fallen by 3% over the past month, and 8% over the past six.

"Although this outturn represents outperformance versus most of our Media watchlist stocks it is, in our view, disappointing relative to the company’s prospects, its underlying attractions, and the robust performance and outlook assessment contained within its interim results," said ShoreCap analyst Roddy Davidson.

First-half results from Pearson revealed that underlying sales rose 6% year-on-year while operating profits jumped 44%, as strength in its English Language Learning, Workforce Skills and Assessment & Qualifications divisions offset weakness in Virtual Learning and Higher Education.

The company also gave updates on its AI strategy, and how it was selectively deploying tech to help leverage its proprietary learning content and adding to initiatives already in place, Davidson highlighted.

"We believe that Pearson can successfully utilise AI to enhance its content, its services, and its ability to add value to consumers. Importantly, we also see the depth and legitimacy of its proprietary IP and the guarantee of accuracy and editorial oversight this provides as a substantial competitive strength in a space where issues around plagiarism, cheating and false information are well documented."

Davidson said that Pearson's growth prospects are not adequately reflected in the current stock valuation – trading at 14.7x earnings – and ShoreCap's fair value estimate of 1,106p suggests around 30% upside to the current share price.

The stock was up 0.3% at 844p by 0842 on Thursday.