View from City Road: Roles are reversed at Pearson

THE BEAUTY of 'concentrated' conglomerates, according to Pearson, is that most healthy businesses can nurse their weaker brethren through difficult times. But you could say that this ensures that the group as a whole never performs spectacularly.

Last year, the rugged employees of Pearson's oil services division helped support the ailing book publishing side. This year, roles have been reversed.

Book publishing has been turned around by what Lord Blakenham, chairman, described as 'good publishing'. That means Penguin's authors, such as Stephen King, are high on the New York Times best seller list.

The figures show a startling recovery from a loss of pounds 8m at Penguin in the first half of last year to a trading profit of pounds 1.3m at this year's interim stage. Operating profit for the book division as a whole has rebounded from a loss of pounds 13.4m to a profit of pounds 2.4m.

At oil services, though, fortunes have been reversed. Largely as a result of environmental restrictions, big tracts of the US are now off-limits for oil exploration. That crucial yardstick of activity in the US oil and gas exploration market, the rig count, is below 700, down from almost 1,000 at this time two years ago. The US is Pearson's biggest market for oil services and so, in sterling terms, sales have fallen by 17 per cent and profits by 55 per cent.

Pearson hopes the problem will partly solve itself. When US composite gas prices rise, as Pearson hopes they will, so the smaller independent exploration companies should step up drilling.

None of this, however, caused much of a stir in the stock market. Pearson shares rose 2p to 314p. The market was visibly relieved that group pre-tax profits for the half-year, which at pounds 34.8m were 14 per cent down on last year's pounds 40.7m, were not worse.

What did get analysts reaching for their red pens to slash forecasts was the calculation by James Joll, finance director, that a rate of two US dollars to the pound in the second half of last year would have cut 1991 pre-tax profits by pounds 9m.

The news from BSkyB, where Pearson has a 16 per cent stake, was that profits have been running at about pounds 500,000 a week.

Because this is not equity-accounted, Pearson might be regarded as cheap if it were a pure media stock. But as a conglomerate, it is hard to make a case for buying the stock.