Shares digital

Pearson (PSON) – Finals PTP: £468m (£448m) Divi: 20.5p (18.8p)

The Penguin owner and education publisher beat analysts’ forecasts at its finals after posting a 6% rise in revenues to £4.2 billion.

There had previously been concerns that the company, which generates around two-thirds of its profits from its mainly US-focused education business, would suffer from the weaker market there. However, investors’ fears have been somewhat allayed, with Pearson predicting a reasonable low single-digit growth for the school business in 2008. ‘We continue to reshape Pearson into a more digital, more international and more efficient company, and those changes make us confident that 2008 will be another good year,’ says chief executive Marjorie Scardino. She was, however, more cautious about revenue forecasts for advertising at the Financial Times, saying that trends for the coming year remain difficult to predict.

The shares have dropped from highs over £9 in 2007 to a low of 620p in January, but have started to regain ground after getting some momentum from the results and a bout of share-buying by directors.

Analysts gave a broadly positive response to the results and see the company as one of the hardier stocks in the media sector in the event of a downturn. ‘We view Pearson as being at the resilient end of the media spectrum, though it is not immune to education spending cuts/delays and softness in financial advertising/information,’ says Numis analyst Lorna Tilbian. She has a buy recommendation on the stock and a target price of 804p, some 14% above their current level of 690p.

Shares says: After bottoming out the shares are now recovering and are worth holding on to.

by: Susanna Twidale