Academic publisher Pearson (PSON) is down 15.6% at £10.03 as it warns on 2015 profits. In today’s third quarter update it notes that conditions in its end markets are yet to improve and says adjusted earnings per share — its key metric for profitability — will be 'around the bottom end' of a range of 70p to 75p. In February, it had forecast a range of 75p to 80p.

We expressed our scepticism about the business despite the repair work done to the balance sheet through the sales this summer of The Economist and Financial Times for a cumulative £1.3 billion.

Liberum which reiterates Pearson as its top sell with an 800p price target says today’s announcement could be the catalyst for an overdue de-rating. Suggesting that due to the structural problems the company is facing it should trade below the 16+ times prospective EPS it traded on before today’s fall.

Analyst Ian Whittaker comments: ‘Despite having several profit warnings over the past few years, Pearson's multiple has remarkably not de-rated, showing a market belief that the problems were temporary and the company would eventually return to sustainable growth. We have always disagreed, arguing Pearson's problems are more structural in nature and, therefore, the company deserves to be de-rated.’

Issue Date: 21 Oct 2015