Investors are reacting very positively to a reassuring update from education products specialist and publisher of the Financial Times Pearson (PSON). The company confirms 2014 numbers will be in line with guidance and points to growth in 2015 driving the shares to the top of the FTSE 100 leaderboard - up 5.3% to £13.02.

Why such a relatively big move in response to a robust but hardly stellar trading statement? Well the market seems to be taking today's news as a sign that a cycle of downgrades for the £10.7 billion cap is at an end. Regular January trading reports in both 2013 and 2014 were accompanied by major profit warnings as the group dealt with government cutbacks affecting its core education businesses in the UK and North America.


A restructuring process seems to have delivered with 2014 numbers in line with guidance - adjusted operating profit and adjusted earnings per share (EPS) expected to be around £720 million and 66p, respectively. Crucially material growth is forecast for 2015 with earnings per share projected at between 75p and 80p. Chief executive officer John Fallon says: 'We enter 2015 a simpler, leaner, more cash generative business, well set for long-term growth and success, helping more people around the world make progress in their lives through learning.'

Not everyone is convinced. Westhouse analyst Roddy Davidson reiterates his sell advice (although will review a 995p price target). He writes: 'We believe the market will be initially reassured by the headline performance and forward guidance in this morning’s update. Although, significantly we note that the 2014 beat against our EPS forecast and encouraging guidance for the current year are both materially influenced by a lower tax rate, that the latter also assumes a significantly improved currency backdrop and that underlying trading conditions remain very mixed and challenging.

'We expect to upgrade our current year adjusted EPS forecast by 3-4% and will review our target price accordingly, but remain concerned that execution risk as the group transitions to a digital learning company and disruption in several markets is not adequately reflected in its current valuation.'

Investec stays at hold and puts its £10.52 target under review adding: 'reasonably positive with no disasters and EPS guidance top end of the range, but mostly tax and FX related as far as we can see'.

Issue Date: 21 Jan 2015