An update from academic publisher Pearson (PSON) gets the market’s attention for the right reasons, sending the shares 9.6% higher to 720.5p.
Details on a restructuring of the business and confirmation the final dividend will be maintained help make up for what is essentially a mild profit warning.
Pearson’s core activity is the provision of US higher education materials and testing. It faces a number of unhelpful structural issues including lower book rentals and stagnating enrolments in US higher education facilities as well as a loss of market share in testing.
In a long-term profit downgrade cycle the shares have fallen 44.2% over the past 12 months despite efforts to repair its balance sheet through the sale of the Financial Times and its stake in The Economist.
The company says it will simplify the business and reduce costs for an initial outlay of £320 million in 2016. Management are targeting annualised cost savings of £350 million with the eventual aim of getting adjusted operating profit to £800 million by 2018.
Numbers for 2015 will be slightly light of previous guidance for earnings per share (EPS) of 70p to 75p at between 69p and 70p, however the dividend is being maintained at 52p.
Earnings per share is expected to be in the region of 50p to 55p in 2016 with the dividend maintained at the 2015 level.
Less positively the company continues to point to ‘challenging conditions in our largest markets’.
Shore Capital analyst Roddy Davidson, who has a 'hold' recommendation and 658p price target on the stock, says: ‘Whilst it is disappointing to see further restructuring costs and little if any improvement in underlying markets we are broadly encouraged that Pearson has decided to redouble its efforts to meet external and internal challenges.
‘We believe the market will also be relieved by its decision to maintain dividends at 2015’s level.'
