Sunday share tips: Pearson, Frontier IP

Pearson, tipped by the Sunday Times Inside the City column as one to 'hold', has lost almost a quarter since the company got £844m for selling the Financial Times to narrow its focus onto its education business. After citing lower US college enrolments and a drop in South African textbook purchases, following by a rising trend of student buying second-hand books. After cutting jobs and the dividend two years ago and another divestment to reap £761m from cutting its stake in Penguin-Random House to help trim debt, the shares started to come off their low as last year they were one of the best performing in the FTSE 100.

Pearson's new focus as a supplier of digital educational materials has not been smooth sailing, with last month's trading update showing cost cuts needed to be made in order to smooth over a dip in US higher-education sales. Analysts at Liberum said ther's “only so much cost-cutting you can do to mask the underlying problems facing the business”. With the shares going for 15.7 times full year earnings, on a par with peers rivals Axel Springer and Relx, it will take more than just cost-cutting before there is any real uplift.

Frontier IP was the tip from Midas in the Mail on Sunday, suggested as one for the more adventurous investor. Britain's academic research receives investment of roughly £8bn each year, two thirds from the government, but while plenty is world-class there is not much that evolves from theory into practice, which is where Frontier looks to come in. Unlike those listed firms that have deals with universities or go round looking for research opportunities to invest in and commercialise, Frontier offers advice, support and industry contacts to academics in return for a stake in any start-up companies. The company also looks to pair ideas with industry partners so the work can be tailored to what companies need.

One company was launched from an academic's idea about a robotic arm that could pick soft fruit, which was paired with the country's largest raspberry grower. Another's patented test for water cleanliness is now working with FTSE 100 group Halma to develop the technology. A ceramic recycling process has already won business from Nando's, Amazon and Four Seasons Hotels. Frontier has stakes in 15 start-ups and has begun to branch out in Portugal. Some of the portfolio are considering initial public offers, while others could be acquired or tie up with partners. Management are "highly focused" on investor returns, either share buybacks or special dividends.

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