Pearson’s woes spark share dip
AS the hamstrung Footsie dropped into socalled bear market territory, or more than 20pc below last April’s peak of 7122.74, education group Pearson found itself at the bottom of the class. Its shares fell of 27p to a six-and-a-half year low of 657.5p ahead of today’s trading update.
Clients of Liberum Capital ran after the broker reiterated its sell stance and slashed its target price to 540p from 640p amid fears the board could slash the dividend and use the cash to finance investment.
Liberum said it is widely recognised that 2016 will be a difficult year for Pearson but the market does still not recognise the full extent of the secular issues.
There is a significant chance of further restructuring charges and there is a risk to the dividend. Its biggest area of concern though is American higher education – 38pc of 2016 profits – as students across the Pond are buying fewer books. Rival broker Panmure Gordon also sees short-term risks but long-term value. It expects a cut dividend, restructuring and retrenchment.
It’s been downhill all the way for Pearson since October’s shocking profits warning which saw shares collapse 189p to 998p, then the biggest share price fall since 1987. It earlier in the year had sold its flagship publication, the Financial Times, to Japan’s Nikkei for £844m in cash and its 50pc stake in The Economist Group for £469m cash.
Dealers reached for the tin hats as a further £48bn-plus was wiped from share values following carnage in Asia as the oil price collapsed to a 12-year low below $28 a barrel.
Sellers were hyperactive after the International Energy Agency warned that Iran’s anticipated output of 600,000 barrels of oil per day could see the market ‘drown in oversupply’ of crude in 2016. Bearish comments from the IMF made matters a lot worse after it downgraded global growth for the third time in 12 months.
The Footsie collapsed 203.22 points to 5673.58, while the FTSE 250 crashed 473.55 points to 15641.01, not helped by an early 386-point slump on Wall Street which looks set for one of the worst monthly performances on record. The MSCI World equity index also slumped 2.6pc to its lowest level since July 2013.
The latest Bank of America/Merrill Lynch Fund Managers survey showed that investors are now significantly less confident in the global economic outlook.
A slowdown in China now stands out as the biggest ‘tail risk’ by far. Average cash balances of fund managers are now up to 5.4pc, the third-highest reading since 2009. A net 38pc of investors are now overweight cash. But amid the doom and gloom, Peter Garnry, head of equities at Saxo Bank, said: ‘No matter where we look, data points suggest this is blown out of proportion and the situation will normalise. Equity markets and especially many individual stocks look very attractive at these levels especially as we are not forecasting a global recession based on the incoming macro data.’
As the safe haven gold price jumped 14pc to $1,101.9 an ounce, Randgold Resources gained 148p at 4416p.
Mike Ashley’s Sports Direct was a firm exception too at 403.9p, up 9.1p. Rumours were rife that Ashley acquired a 2.3pc stake in Dick’s Sporting Goods of the US via contract for differences, as he is aware that the operator of 645 stores in the US will not remain independent for much longer.
The rest of the market was a car crash. Miners took another pasting, not helped by BHP Billiton’s (46.2p down at 580.9p) doomsday scenario trading statement. Controversial commodities trader Glencore lost 7.78p to 71.2p and Anglo American shed 17.75p to 221.05p despite selling its a coal mine in Australia, to Batchfire Resources.
Still reeling from the shock of chief executive Samir Brikho’s hasty departure, oil and gas services business Amec Foster Wheeler fell 35.6p to a low of 345.9p, which compares with June 2014’s peak of 1271p. It was all downhill for former City darling Brikho after he splashed out £2bn on Foster Wheeler, an American rival, in 2014.
One Savings Bank came on offer at 284p, down 29p, following a Credit Suisse downgrade to underperform. The broker advised clients that OSB is too reliant on buy-to-let to achieve medium term customer loan growth targets of 20pc.
Ocado rose 5.9p to 265p amid continuing speculation that either Amazon would either launch a full-scale bid or announce a joint venture agreement with the online grocer.
An Investec buy recommendation in the wake of a strategic review and planned asset disposals left SDL, the translation software maker, 19.5p higher at 449.5p.
The broker’s target price is 650p. Hochschild Mining rose 1.5p to 41p after forecasting higher 2016 silver production.
÷ SHARES in Graphene Nanochem, 1.25p dearer at 9.38p, attracted buyers after it announced its first commercial order of its Confi-Gel additive, together with progress on its debt restructuring plan. Confi-Gel is an additive in base-drilling fluids. It reduces the loss of fluid and increases stability during drilling. Its structure, the company says, enables more precise drilling and allows companies to make cost savings.