Investec rates Pearson at 'add', raising target price

Investec recommended an ‘add’ rating for Pearson on Friday and lifted its target price to 791 from 748p, hailing the education publisher’s restructuring programme.

Pearson on Thursday said it would hold its division for 2015 as profits were likely to miss market expectations as it overhauls its business following the disposal of its media assets including the FT Group and a stake in The Economist Group.

It now expects adjusted operating profit of approximately £720m and earnings per share of between 69p and 70p for 2015. This is below forecasts and down from the group’s previous guidance of around the bottom end of 70p to 75p.

Pearson said it would carry out a £320m restructuring this year, which it expects to generate annualised savings of around £350m, with approximately £250m of savings in 2016 and a further £100m of savings in 2017.

“The new restructuring plan shows Pearson can still do self-help, though the orientation to efficiency and costs is less attractive than a new incremental growth programme independent of cyclical and regulatory pressures,” said Investec analyst Steve Liechti.

“While we did not expect a 17% ‘pop’ yesterday, from a trading perspective, Pearson now has a quiet seasonal quarter to deliver efficiencies and give a better view of prospects at full year before we go into the more important second half trading period. Shares could outperform over this period.”

Shares fell 2.85% to 750p at 1042 GMT.