Shares in education publisher Pearson slumped to a six-and-a-half year low after a broker slashed its target price ahead of Thursday's trading update.
Panmure Gordon almost halved the stock’s target price from £14.75 to 760p amid expectations of a “dividend cut, tough trading conditions, restructuring and retrenchment”. “In the near term, the trading update is likely to be challenging, given tough conditions highlighted by Pearson in October and confirmed more recently by several other US education peers,” said Jonathan Helliwell, of Panmure Gordon.
Following a series of disposals, namely the Financial Times and the Economist, and a number of contract losses in the US, visibility on trading is poor, due to “a complex mix of regulatory and structural issues”, the broker cautioned investors.
Stanley Taurel assumed his role as chairman just 21 days ago, while the chief financial officer, Coram Williams, was appointed in August. Given the recent change in management, Mr Helliwell expects that Mr Taurel will choose to re-base the dividend.
“We forecast a significant further exceptional restructuring charge as the new management team focuses the group on a narrower range of education businesses, where it can be confident of longer term growth, decent economic returns and regulatory clarity.”
Liberum also moved to reduce Pearson’s target price, reiterating its “sell” rating yesterday for similar reasons. “We think there is a significant chance of further restructuring charges and there is a risk to the dividend,” Ian Whittaker, of Liberum, said.
Shares in Pearson tumbled 27p, or 3.9pc, to 657½p.
Meanwhile, there was widespread pandemonium across global equity markets as oil resumed its slide, touching $27.10 a barrel. The FTSE 100 slumped to its lowest level in more than three years, down 203.22 points, or 3.46pc, to 5,673.58. More than £52bn was wiped off the value of Britain’s leading companies, as the blue-chip index dipped into bear market territory.
Chris Beauchamp, of IG, said: “A fresh downgrade to International Monetary Fund growth forecasts underlines what stock markets are telling investors – that things are looking gloomy across the board.”
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There were only two survivors from the latest oil-inspired sell-off – Randgold Resources, up 3.5pc, and Sports Direct, 2.3pc higher.
Randgold Resources reclaimed its place at the top of the FTSE as investors flocked to safe-haven gold stocks. As a result gold hit a one-week high of $1,109.72 a tonne. Meanwhile, Investec hiked its price target as it believes Randgold is “one of the few companies to still generate earnings growth on our forecasts”.
“While it remains premium-priced, this reflects its robust balance sheet (no debt) and quality assets,” the broker said. Shares in the gold producer jumped 148p, or 3.5pc to £44.16.
UK-listed miners imploded amid growing concerns of a China-led global economic slowdown. The FTSE 350 mining index plunged to a 13-year low in intraday trading. Separately, Investec issued a note on the sector, in which it noted: “We believe that current markets reflect dynamics not seen since the aftermath of Japanese re-industrialisation in 1980.”
The broker also said it expects dividends to be cut heavily across the sector, including industry stalwarts, BHP Billiton and Rio Tinto.
Shares in BHP Billiton tumbled to an 11-year low below the £6 mark yesterday, after it slashed its full-year guidance for iron ore production by 10m tonnes to 237m tonnes, following the suspension of its Samarco mine operations in Brazil. It also revealed plans to write down between $300m (£212m) and $450m from its half-year underlying profit.
Meanwhile, Glencore dipped 9.9pc to 71.2p as Investec warned of additional reductions to capital expenditure. Anglo American fell 7.4pc to 221.1p, while Rio Tinto and Antofagasta shed 4.8pc and 2.6pc, respectively.
Oil majors also ended the day firmly in the red with Royal Dutch Shell B shares off by 6.7pc at £12.78 and BG Group 4.5pc lower at 897.6p.
FTSE 350 mining index
On the mid-cap index, Ocado became a subject of bid rumours once again, following reports on Monday that Amazon is set to swoop on the online grocer. The shares rallied 2.3pc to 265p.
WH Smith was another FTSE 250 stock to buck the trend – up 92p, or 5.8pc, to £16.80 – on the back of strong sales during Christmas. The book and newspaper retailer now expects full-year profit to come in “slightly ahead” of expectations, driven by the recent trend towards “colour therapy”, which includes colouring books for adults. Its travel business also enjoyed a stellar performance with like-for-like sales up 5pc.
Jonathan Pritchard, of Peel Hunt, said: “International travel could become a serious growth vehicle and it is not difficult to build a sum of the parts calculation that suggests a high-teen share price.”
WHSmith will publish its full-year results on Thursday. Photo: DANIEL JONES
Elsewhere, a bearish note on mid-cap lenders triggered a fall in challenger banks. Credit Suisse began covering OneSavings by issuing an “underperform” rating. The investment bank believes it is too reliant on buy-to-let to achieve its growth targets on medium-term customer loans of 20pc.
Shares in One Savings fell 29p to 284p, while Virgin Money slipped 10.9p to 275.1p and Shawbrook lost 3.1p to close at 300p.
Elsewhere, a robust third-quarter update helped Pets at Home make gains of 4.8pc to 244½p. The group reiterated its full-year guidance, as growth picked up in its merchandise business, while its health and hygiene unit made a recovery. Adam Tomlinson, of Liberum, said the strong update should reassure investors that the group’s “recent weakness was a trading 'blip’ rather than anything else”.
Over on Aim, Tissue Regenix leapt 10.9pc to 15.3p after sales of its advanced wound care product, DermaPure, surpassed the $1m mark in the US.
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