Pearson's full-year results were in line with our expectations, and we are reiterating our £11.50 fair value estimate for the ordinary shares. The firm had announced preliminary 2014 earnings per share (EPS) in January, so the earnings report held few surprises. Our forecast for 2015 EPS is at the midpoint of guidance of 75-80p, so it is unlikely that we will raise our fair value estimate beyond the impact of the time value of money.
We continue to regard Pearson (PSON) as a business with structural but fading competitive advantages in its higher education publishing business, and our narrow moat and negative moat trend ratings remain in place. Pearson also announced the appointment of Coram Williams as chief financial officer to replace the retiring Robin Freestone.
Pearson missed our 2014 EPS of 68p by a penny, and as we stated in our note following the preliminary announcement of results, the difference lay on the top line. Full-year revenue rose 2% at constant exchange rates to £4.87 billion, and operating profit, adjusted for currencies and the sale of Mergermarket, rose 8% to £720 million. Across geographies and products, the results were mixed.
Organic growth in the United States was a positive 2%, and digital subscriptions to the Financial Times grew 20%. Other developed markets remain challenged, however, and print subscriptions continued their secular decline. Our near-term forecasts assume stability in the cyclical drivers of the business next year, including fiscal budgets in the U.S. While foreign exchange remains a risk to Pearson's reported earnings – around 60% of its sales are generated in the U.S. – the firm's 2014 results gives us renewed confidence in our near-term forecasts.
The promotion of Williams to the chief financial officer position removes the uncertainty of the impending void left by the retirement of Freestone. Williams currently holds the position of CFO of Pearson subsidiary Penguin Random House.
