Newspaper article The Evening Standard (London, England)

Bad News for Pearson as Merrill Lowers Sights

Newspaper article The Evening Standard (London, England)

Bad News for Pearson as Merrill Lowers Sights

Article excerpt

Byline: MICKEY CLARK

FINANCIAL Times publisher Pearson may be a major casualty of the UK economys lurch towards recession. That is the view of Merrill Lynch, which has slashed its target price for the shares from 855p to 770p. The shares, which started the year at 827p and hit a low of 570p, today fell 12p to 597p.

Merrill says the reduced target is in line with cuts in its forecasts across Pearsons cyclical businesses, which range from Penguin books to educational publishing. It adds that it has made its move in light of deteriorating economic conditions, which have forced it to lower its earnings forecast for 2009 to 52p a share from 55p. It has left its 2008 forecast unchanged on 49.5p.

Shares generally opened lower as the underwriters for HBOS began placing the rump of the shares not taken up in its [pounds sterling]4 billion rights issue. The underwriters say much of the issue has been hedged, a tall order in the current market conditions. Dealers say the overhang will continue to depress the price, down 10p at 272p, for some time to come. The FTSE 100 index fell 29.8 points to 5346.6 in thin trading.

RBS has raised BT Group, 1/2p firmer at 204p, from hold to buy because it thinks the shares are looking cheap ahead of first-quarter results in 10 days time. Recent share-price weakness was exacerbated by a move to invest [pounds sterling]1.5 billion in superfast broadband over the next four to five years.

The broker said the market seems to be factoring in the destruction of between [pounds sterling]7 billion and [pounds sterling]8 billion of shareholder value, based on its expected cash flows, but it believes that is overly bearish. It points out that BT is now trading at significant discounts to the sector and the UK market.

The broker said that, given it feels BTs earnings visibility is relatively good and the dividend should be maintained, the current share price offers good value. …

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