Market report: 'Too cheap' Pearson is top pick on profits optimism

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Investors began to wonder today if struggling Pearson might be able to pull off a miracle and avoid a profit warning at its next set of results.

The City has been betting that the textbook publisher will warn on profits again and even slash the dividend when it reports third-quarter profits due in a month’s time.

The third quarter is a crucial trading period for the company, and the signs from rivals in the US, where Pearson makes two-thirds of its sales, have not been good.

But Morgan Stanley has suggested that it would avoid the dreaded profit warning, helping the shares to surge 43p, or 5.6%, to 806p.

“All it has to do, in our view, is avoid a profits warning for the shares to bounce — sharply,” said analyst Patrick Wellington.

He argued that Pearson’s shares, down 25% since Brexit, are “too cheap”, given it has been the biggest faller of the Footsie companies that generate the bulk of their earnings in dollars.

Pearson proved to be the blue-chip pick of the day when the FTSE 100 surged past 7000, up 89.20 points or 1.3% to 7072.72, and edged towards all-time highs set last year.

The performance was matched by the mid-caps as the FTSE 250 notched up a record high, up 280.54 points at 18,464.06.

SABMiller, up 0.5p to 4495.5p, edged higher in line with the market on its last day of trading on the LSE before its £79 billion takeover by Budweiser and Stella Artois giant AB InBev.

Glencore’s rally continued on plans to buy back $1.25 billion (£1 billion) of bonds in its effort to cut its huge debt pile. The commodities giant improved 4p to 218.95p.

Shares in the challenger banks got a helping hand from one of the lenders they are supposed to be taking on.

Barclays argued that the buy-to-let lenders — hit hard by the European Union referendum result — are now worth piling into, upgrading Aldermore, 2.5p richer at 178.1p, and OneSavings Bank, up 17.9p to 286.6p, to Overweight.

“We view further regulatory and taxation controls as unlikely if the UK Government does not want to risk pushing the economy into a post-Brexit recession,” Barclays said.

Nick Leslau’s Secure Income REIT climbed 2.25p to 304.75p as it raised £140 million in a share placing to buy 55 hotels from Travelodge.

Among the minnows, AIM-listed drugs firm Quantum Pharma plummeted 34.5p to 35.5p, losing around half its value after a shock profit warning and the news that it is to close its Nupharm business.

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October 4, 2016 |
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