Fears On Pearsons Outlook- US-FOREX.US
British publisher Pearson has so far left competitors eating dust. Pearson’s Financial Times circulation sales have grown steadily and the publisher has gained steady market share in its education business in the U.S. But the picture of a solid business might be very different for the second half of the year, some analysts warned on Thursday, ahead of the company’s first half results next week.
Pearson
‘s sales won’t be particularly meaningful for investors as the firm doesn’t make too much money in the first half of the year but analysts will be scrutinizing its ad sales for its FT business and its U.S. education textbooks business to create a clearer picture for its outlook for the second half.
Citi
Group rated Pearson as “medium risk” on Thursday based on its assessment of the troubles affecting the media industry. Advertising sales throughout the media industry have dropped dramatically as a result of the fall in consumer spending. Citi analysts believe visibility for advertising for the FT will remain low. And some analysts estimate advertisement could drop as much as 20% for the business newspaper and experts said operating profit for the group is expected to fall as a result of advertising revenues drying up.Separately, Pearson’s core business of education publishing has also been performing well but Citi fears that a pressure on pricing of college material, which could require publishers to lower prices on books. “If the impact of these factors is greater than we anticipate, then the stock would likely have difficulty in reaching our target price,” Citi said in a note to investors. The company has a target price of 800 pence per share.Currency pressures are not likely to work in Pearson’s favor either as most of its sales are made in dollars. The company has been benefiting from a strong dollar against the British pound and its revenue would have fallen around 7% had it not been for very positive currency effects. But its current estimates were set when the pound traded at 1.4 against the dollar, the valuation is now nearly 1.7. “The pound fell a long way against the pound and that brought good news for Pearson but that’s not longer the case,” Colin Tennant, an analyst with Nomura International in London. Analysts warned that, given the volatility of the currency markets, it is hard to predict whether these movements would work in favor of the company or not.
Shares of Pearson
, which have underperformed the FTSE index by 6% a year to date, fell 1.1%, or 7.00 pence , to 621.50 pence on Thursday in London.