Blue chip: Pearson wakes up

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The Independent Online
PEARSON's shares have suddenly received a wake-up call, the combination of some sparkling results and the general giddiness of the market.

Yet the latest gains still flatter to deceive: if the shares - at 960p - have stormed ahead by 8 per cent or so in the month, and are up 31 per cent in 12 months, they have still underperformed the FT-SE 100 by 7 per cent over that time.

Management, led by the charismatic American Marjorie Scardino, has embarked on a mini-revolution at the palace. The languorous old blue-blood style is being replaced by something more urgent and more commercial intended to shake up all parts of this far-flung media conglomerate, which stretches from Madame Tussaud's to investment bank Lazards. As a guide for what investors can expect, Ms Scardino has set a target of double-digit earnings growth and doubling the value of the group over the next four years.

A highlight of the results was a seemingly rejuvenated Financial Times: sales in the US were ahead 47 per cent, and advertising revenues were up by 15 per cent. The group's French financial daily, Les Echos, also produced good results following expansion in circulation and advertising. Overall operating profits jumped 15 per cent to pounds 323m on sales up a mere 3 per cent to pounds 2.29bn.

The group has written off its misbegotten venture into entertainment software, eliminating embarrassing losses at Mindscape. Clearly, the way ahead looks more appealing than for many years. There is also scope for Pearson to flex its balance sheet, where gearing has dropped to fairly undemanding levels - although there are few signals as to where the group may beef up its presence. TV programming could be one: it now owns All American, the producer of Baywatch and The Price is Right. The group is also looking strong in book publishing.

If Pearson has started to catch up on the rest of the sector, question marks remain over its long-term strategy. For instance, it lacks a stake in digital TV. While there are grounds for optimism, unless you have a speculative bent the shares are probably a hold.

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