Market Report: Worries over US colleges weigh on Pearson

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The Independent Online

Worries about student admissions at US colleges undermined sentiment around Pearson as the FTSE 100 paused for breath last night.

The publishing group fell by 18p to 991p after Apollo, the biggest for profit education company in the US, withdrew its outlook for next year, blaming an uncertain regulatory environment and warning of a significant drop in new student enrolments. The news, disclosed in an overnight update, was seen as a negative for Pearson, with Royal Bank of Scotland analysts repeating their "sell" view on the back of Apollo's statement.

"Apollo said it expects admissions to be down 'significantly' in 2011. For profit colleges account for around 3 per cent of Pearson's sales we estimate, but the slowdown they are seeing is a worry, as for some time we've argued [that the] Pearson US college division (20 per cent of sales) is counter cyclical and will slow in 2011," the broker said, repeating its 915p target price for the stock.

Overall, the markets were lower. The FTSE 100 fell to 5,727.21, down 20.14 points, while the FTSE 250 lost 19.34 points to 10,882.66 as investors banked profits from the recent run of gains. Banks were out of favour, with traders attempting to gauge capital requirements in the wake of Standard Chartered's rights issue move.

The cash call, which was announced earlier in the week, and which was pinned on new regulatory requirements, triggered speculation about similar moves elsewhere. Barclays was mentioned on Wednesday, though Jonathan Pierce, the widely followed banking analyst at Credit Suisse, played down the speculation, arguing that "none of the UK banks needs to raise equity".

Nonetheless, with sentiment remaining weak, the sector traded lower. Royal Bank of Scotland was the weakest of the lot, shedding 2.23p to 45.3p, while Barclays fell 12.05p to 279.95p. Lloyds and HSBC were also held back last night, losing 2.13p to 70.47p and 8.8p to 662.3p respectively.

Elsewhere, parts of the heavily weighted mining sector remained firm, helping limited the overall loss on the FTSE 100. Xstrata took the blue chip crown, rising by 42p to 1,342p, as weakness in the dollar continued to support metals prices. Eurasian Natural Resources Corporation was also higher, gaining 11p to 941p.

The gold miner African Barrick Gold was the biggest blue chip casualty of the day, ending at 564p, down 59.5p, after scaling back its 2010 production target for the second time in three months.

The software group Autonomy was 35p lower at 1,389p after Evolution Securities scaled back its estimates in light of the recent disappointing trading statement. "Lack of a major acquisition, slowdown in net working capital growth and cleaner like-for-like comparisons have coincided with disappointing organic growth – which we doubt is coincidental," the broker said. "The stock has not derated and we think it should."

On the upside, the platinum refiner Johnson Matthey gained 50p to 1,892p after Royal Bank of Scotland analysts reiterated their "buy" view. Johnson is a leader in the market for catalytic converters, and RBS said it expected the company to benefit from the recovery in the market for premium passenger cars and improving truck sales.

"We forecast [that global passenger car sales] will grow 5.5 per cent [this year], with the premium segment outperforming volume producers, which would be positive for catalyst sales," the broker said, revising its target for the stock to 2,000p from 1,800p.

Further afield, the pub group JD Wetherspoon was under pressure, falling by nearly 4 per cent or 17.3p to close at 437.4p as the market digested news that finance director Keith Down and chief operating officer Paul Harbottle were stepping down.

The company did not disclose the reasons behind the changes, though KBC Peel Hunt said it believed the departures reflected "a strategic disagreement about the use of cost savings to protect margins [in the] short term".

In the wider sector, the tenanted groups Punch Taverns, down 1.9p at 75p, and Enterprise Inns, down 0.6p at 113.9p, fell on news that the Office of Fair Trading, the UK consumer watchdog, was not taking further action after consulting on the findings of last year's investigation into the "beer tie" practice, which requires pub lessees to buy beer solely through their pub company landlords.

The building and environment consultancy WSP was 13p stronger at 395p after KBC Peel Hunt recommended the stock. The broker said that with UK public sector cuts "just around the corner", it valued overseas earnings, which WSP could boast in spades. "WSP has the highest overseas profit exposure amongst its peer group and the greatest exposure to any private sector led recovery," KBC explained, revising its recommendation to "buy" from "hold".

"Despite these attractions and a comfortable financial position, the stock trades on multiples only in line with its peer group and the market," the broker added, upping its target price to 415p from 350p.