It was a tale of two stocks on a flat day for the UK market that saw the FTSE 100 dip 11 points or 0.14% lower at 7,516.
Pearson jumped to the top of the blue-chip index after a surprisingly positive trading statement from the education group, while Merlin Entertainments plunged on a profits warning.
Pearson (PSON) shares raced 7.5% or 46.5p higher to 668p after saying it was raising its profit outlook slightly higher as pressures on its core North American business had begun to ease.
‘We are confident we are on a path to return Pearson to long-term and sustainable growth,’ said chief executive John Fallon. ‘This is encouraging but there is still a long way for us to go.’
The news should be music to the ears of Pearson investors, including star fund manager Nick Train who has stuck by the group as it has undergone a series of profits warnings after moving its business online. In August it cut its dividend having reduced costs with the loss of thousands of jobs in recent years.
In a nine-month trading update, Pearson said underlying profits at its US higher education courseware profits had slipped 1%, at the lower end of its full-year range of up to a 7% decline.
It now expects adjusted operating profits of between £576 million and £606 million, up from a previous range of £546-£606 million.
Analysts recognised the improvement but were sceptical whether it signalled a turnaround. ‘We remain concerned around the structural issues alongside the disruption to digital has on top line and margins,’ said analysts at Jefferies, reiterating their ‘underperform’ rating on the stock.
Pearson has a lot to do to impress investors as its shares have more than halved from the peak in March 2015.
Investors in Merlin Entertainments (MERL) will hope today’s profits alert does not herald a miserable few years for the operator of tourist attractions including Madam Tussauds wasworks.
Its shares dropped 16% or 73p to 377p after warning core earnings for this year would not meet current market expectations.
A series of five terrorist attacks this year have discouraged visitors to the London Eye, Sea Life and Merlin's theme parks such as Alton Towers. As a result it expects underlying profits to be in the £470 million to £480 million range. Although that is more than the £433 million it reported last year, it is lower than analysts’ average forecast of £490 million.
‘The spate of terror attacks witnessed in the UK marked an inflection point in Midway London attractions and UK theme park trading,’ said chief executive Nick Varney.