Our view: Hold
Share price: 769p (-12p)
Pearson's trading update yesterday would be the envy of much of the media sector. Underlying sales at the publishing group were up 5 per cent and profit up 15 per cent for the first nine months of the year. This is an industry where most companies are struggling to show any growth.
The difference is that Pearson is not much exposed to advertising revenues, except through its Financial Times paper, which forms a relatively small part of the group (providing sales of £179m out of £1.9bn at the half-year stage). Instead, the company's fortunes are tied to selling textbooks into the US education market, and here it has a supreme position, with a third of the market for schools and higher education.
US education as a business is not without its cycles. Many individual states order their own textbooks, and some years will see many more of these scheduled "adoptions". We are about to enter a very strong three-year period for adoptions, 2007-9, so expect Pearson's profits to continue growing - the company said yesterday that 2006 would be a record year.
Aside from education and financial news and data, the other arm of Pearson is its Penguin books division. This went through a difficult period in 2004 and some of 2005, due to distribution glitches and other issues, but it is now doing OK - full-year sales growth will be a less-than-exhilarating 1 per cent at Penguin this year.
At education, sales will be 3 to 5 per cent up for the full year, while in the first nine months of 2006, the FT group has down 5 per cent sales expansion.
Pearson has a fantastic collection of assets, which are performing well. As the FT's Lex column might say, if Pearson were broken up and the three arms sold off, there is little doubt that the sum of the parts would fetch more than the whole.
While Marjorie Scardino is chief executive there is very little prospect of a break-up but, while she has announced no retirement date, remember that she turns 60 next year. Hold.
St James's Place
Our view: Buy
Share price: 382p (unch)
With the stock market heading back towards the highs not seen since the end of the 20th century and ever-increasing pressure on individuals to save more for their retirement, there's plenty of wealth around to manage just now.
St James's Place, the upmarket wealth management company, is grabbing more than its fair slice of that money. Shares in the group, 60 per cent owned by HBOS, jumped almost 2 per cent yesterday following a favourable note from the broker Dresdner Kleinwort. It opined that St James' decision two weeks ago to allow almost 100 of its advisers - or partners, as the group calls its sales staff - to join a rival mortgage provider was a wise one. The 99 partners were responsible for generating just 1 per cent of annual premium income, but represented 8 per cent of the sales staff. Besides, St James's wants to concentrate on more lucrative business sectors than home loans - specifically pensions and other long-term savings and investments.
It is already making strong progress. Dresdner expects third-quarter figures, due tomorrow, to show premium income of £75.2m for the three months to the end of September, up 44 per cent on the same period last year.
The driver behind that growth is St James's strong position in the upper reaches of the pensions market, which have boomed since the so-called A-day tax reforms introduced in April. Excellent sales of high-margin investment products have also boosted the company. Buy.
Our view: Hold
Share price: 52.5p (unch)
Financial Objects appears well on the road to recovery. The small-fry software provider turned in impressive interim results last month and appointed a new chief executive yesterday. Karim Peermohamed joined the company in 1997 and rises from the position of chief operating officer to replace founder Roger Foster, who will stay on as chairman on a part-time basis.
Financial Objects commanded a valuation of nearly £300m back in 2000, but has suffered since as the market for banking software has stagnated. Unlike larger rivals Misys and Royalblue, Financial Objects struggled to compete for the handful of opportunities available during the fallow years for technology investment. Yet the company has made good progress in 2006 and has committed to increasing both its UK sales force and its Indian staff by 50 per cent. The company has been strengthened by the acquisitions of Wealth Management Systems and Raft, a deal that took it into the energy software sector, and is confident in its outlook.
The company trades at less than nine times projected earnings in 2007 despite double-digit growth potential, though it is as yet uncertain whether Financial Objects' recent success is sustainable. Hold.Reuse content