Top UK Stocks to Watch: Pearson shares rise after solid start to 2021

Pearson delivers a much-improved performance, Tate & Lyle considers selling its primary products division, IMI ups its guidance and launches a new share buyback, Draper Esprit smashes expectations, and reports emerge that Darktrace is preparing to cut the value of its London IPO.

UK

Top News: Pearson expects to return to growth in 2021

Pearson said it expects to report revenue and profit growth in 2021 after the educational media business delivered 5% topline growth in the first quarter, driven by its shift to online learning during the pandemic.

Global online learning reported 25% underlying growth during the quarter, offsetting 2% declines in its global assessment and its international divisions, which both continue to suffer as a result of coronavirus restrictions. Its North American courseware business posted 1% growth.

Pearson said its virtual schools were the main driver behind the growth in global online learning, while North American courseware benefited grew as Canada started buying more digital courseware and from an increase in school funding, offsetting a fall in demand higher education courseware in the US.

The return to growth will be welcome news to shareholders after Pearson saw underlying revenue fall 10% in 2020 as its digital businesses struggled to counter the disruption caused to the rest of its business by the pandemic.

‘It's been a good start to the year for Pearson, delivering 5% sales growth in the quarter. This is despite a longer period of disruption from COVID-19 in the quarter compared to last year. I'd like to thank colleagues for their ongoing dedication and hard work,’ said chief executive Andy Bird. ‘We are building pace and momentum. We are making good strategic progress in our ongoing shift to digital, we are in the advanced stages of preparation for the forthcoming launch of our new college app and our organisational redesign is on track.’

‘We continue to expect to deliver revenue and profit growth in 2021 and for our performance to be in line with our 2021 outlook as we benefit from improving trading conditions as COVID-19 restrictions ease. We are focused on executing our new strategy and believe that it will create sustainable and significant value for all of Pearson's stakeholders,’ he added.

Where next for the Pearson share price?

Pearson share price has been trending higher since early November and trades at pre-pandemic levels. It trades above its multi-month ascending trendline, its 50 & 100 EMA showing an established bullish trend.  

The RSI is pointing higher and above 50 but below 70 suggesting that there could be more upside on the cards. That said the long wicks on the candles around could be a seen of weakness at the more elevated levels. 

Immediate resistance can be seen at 838p the March high. Beyond here buyers could look to target 878p high January 28 and a pre-pandemic level. 

On the downside, support can be seen at the 788 – 778p contention zone made up of the ascending trend line support and the 50 EMA. Beyond here horizontal support at 760p could be tested. A break through here could see the sellers gain traction. 

Tate & Lyle considers selling primary products division

Tate & Lyle said it is considering separating its food and beverage solutions and primary products divisions.

Tate & Lyle intends to sell a controlling stake in its primary products business to a ‘new long-term financial partner’. The division supplies commodities like sweeteners and starches.

It booked annual revenue of $1.8 billion last year and an operating profit of £158 million, with analysts forecasting it could be valued at around £1.2 billion. The statement on Monday morning was responding to reports in the Telegraph over the weekend.

‘Tate & Lyle continues to successfully execute its strategy and remains confident in the future growth prospects of the company. However, the board believes that if a transaction of this nature was completed it would enable Tate & Lyle and the new business to focus their respective strategies and capital allocation priorities and create the opportunity for enhanced shareholder value,’ said Tate & Lyle.

‘Discussions with potential new partners in the Primary Products business are at an early stage and therefore there can be no certainty that a transaction will be concluded,’ it added.

Tate & Lyle shares were up 6.9% in early trade at 808.7.

IMI ups expectations and launches share buyback

Specialist engineering firm IMI raised its guidance for the full year and launched a new share buyback programme after performing better than expected during the first quarter.

The company said organic revenue rose 7.7% year-on-year to £421 million in the first three months of the year. Notably, that was also 2.6% above the first quarter of 2019 before the pandemic hit.

‘We are pleased with the progress that the business has continued to make through the first quarter of 2021 as we accelerated our strategy to deliver sustainable profitable growth. Our increased focus on adding value for our customers by solving key industry problems, along with initiatives to reduce complexity and accelerate growth, are delivering tangible benefits,’ said chief executive Roy Twite.

‘This momentum not only gives us the confidence to raise our guidance for the full year and announce a share buy-back programme, but also underpins our belief that IMI can deliver sustainably higher margins going forwards, at the same time as investing fully for growth,’ he added.

IMI now expects to report annual adjusted EPS of 81 pence to 87p in 2021, up from its previous range of 75p to 82p. IMI also said it is now targeting a sustainable margin of over 20% over time rather than the 18% to 20% it was previously pursuing.

IMI is also launching a new £200 million share buyback programme to utilise surplus cash while leaving enough to keep investing in the business.

IMI shares were up 5.6$ in early trade at 1480.0.

Draper Esprit to keep up the pace as it smashes expectations

Draper Esprit said it plans to continue scaling the business by investing more money into new and existing investments after delivering stellar growth during 2020 that came in well ahead of expectations.

The tech-focus VC has made a name for itself by providing exposure to major tech companies that are in private hands and said it will report a net asset value of ‘no less’ than 728 pence when it reports annual results covering the 12 months to the end of March. That is up from 555p a year ago and well ahead of the 643.65p forecast by analysts.

The value of its portfolio jumped to £955 million from £703 million. Draper Esprit said it will report a gain of at least £330 million for the year compared to just £59 million the year before. That 47% rise in value is considerably better than the 20% annual gross portfolio returns that the company targets through the cycle.

The company said its performance has encouraged it to step up its investment activity in the second half of the year, having invested £96 million compared to just £32 million in the first. That was boosted by the £107 million equity raise it completed in October. Draper Esprit said the increased level of investment has continued into the new year, with £50 million of deals already agreed and another £75 million worth under consideration.

‘The market for tech company investments has been exceptionally strong since the pandemic, highlighting the importance of technology to many aspects of our future. Our impressive fair value increase reflects that, as well as the ability of our Partners to identify companies with potential for high growth. The nature of venture capital means that investments must be made throughout the cycle. Today's strong returns are partly down to investments made when things were less buoyant,’ said chief executive Martin Davis.

Draper Esprit will release its annual results on June 14.

Draper Esprit shares were trading 0.7% lower in early trade at 848.0.

Darktrace to cut IPO valuation

Cybersecurity firm Darktrace is reported to have cut the value of its London IPO to ensure it avoids a calamitous listing following Deliveroo’s poor performance since going public, according to Sky News.

The company is reported to be targeting a valuation of £2.4 billion to £2.7 billion, far below the £3.6 billion that has been touted in recent weeks. The move is thought to be part of plans to ensure its shares perform well after listing after seeing Deliveroo shares collapse by more than a quarter on their first day of trading last month.

It is also expected to help address some of the concerns around its first investor Mike Lynch, who is currently at the centre of a dispute over the sale of a business in the US back in 2011.

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