Academic publishing firm Pearson (PSON) is at the top of the FTSE 100 leaderboard after a modest improvement in its profit guidance. The shares are up 4.8% at 651p, paring earlier gains which had taken the shares as high as 680.5p.

Investors are presumably attracted by the company’s recovery potential after a torrid few years which have delivered multiple profit warnings.

Alongside today’s update, covering the first nine months of 2017, the company narrows 2017 profit guidance from £546m to £606m to £576m to £606m and adjusted earnings per share guidance from 45.5p to 52.5p to a new range of 51p to 54p.

These upgrades reflect cost savings and a more favourable resolution of historical tax issues which will bring the adjusted tax rate for the year down from 21% to 16%.

NO IMPROVEMENT IN CORE BUSINESS

What they don’t indicate is any tangible improvement in the performance of Pearson’s core business, where it remains hamstrung by falling demand for academic textbooks.

Group underlying revenue for the nine month period is down 4% against a 1% improvement in the first half which, although Pearson does not explicitly spell it out, suggests a sharp deterioration in the third quarter.

Liberum analyst Ian Whittaker says: ‘Before the champagne corks are opened on Pearson, it should be noted the business is very Q4 weighted in terms of revenues and profits in particular because of the level of returns in October and November and selling ahead of January.

‘Last year, Pearson's nine month trading statement, while weak did not give an indication of just how bad Q4 would be in US Higher Education publishing revenues fell 30% year-on-year in Q4, driving an 18% fall for the full year.’

Whittaker reiterates his ‘sell’ recommendation on the stock and 330p price target.

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Issue Date: 17 Oct 2017