Yesterday's trading: Pearson pressure to do the splits
Rupert Murdoch is no mug when it comes to buying media assets. So it can't be a huge surprise that his £2.5bn deal to buy Wall Street Journal owner Dow Jones has got City tongues wagging about the future of media group Pearson.
The Penguin books and Financial Times owner has previously shrugged off calls to break up the group. But a few recent deals could have Pearson chief Dame Marjorie Scardino fending off renewed pressure to split in order to realise its true value.
Analysts at Deutsche Bank demonstrated why, with a bullish 'sum of the parts' valuation on the stock of up to £10.2bn, or 1100p a share.
It believes that if Reed Elsevier can make around 18x its 2007 earnings from the sale of its Harcourt educational publishing assets, Pearson's schools and college business could be worth up to £7.2bn.
And now that Murdoch has given a timely pointer as to how top notch financial publishing assets should be valued, Pearson's own stable - the FT, Les Echoes, 50% in the Economist, plus others - could fetch £1.05bn. Its Penguin publishing arm is also thought to be worth another £1bn.
Mark Braley at Deutsche reckons Pearson's current share price, down 7½p at 823p, ' materially undervalues' the group. He added: 'There is a strong case for management to consider an aggressive restructuring of the portfolio.'
Water stocks were back on tap as investors lapped up shares in former Yorkshire Water group Kelda. Both Citigroup and Merrill Lynch upgraded their ratings on the utility, while JP Morgan lifted its price target to 928p.
Kelda's shares hit their lowest point on Tuesday since September 2006 after a downgrade from UBS. But they bounced back strongly, up 18½p to close at 889p, making it top mover in the Footsie.
There has been plenty of interest from predators in the water sector, as private equity infrastructure funds are thirsty for the stable earnings flows that water firms provide.
Analysts say the impact of rising interest rates is overestimated in relation to the ability of buyout groups to raise debt to finance deals because most have already raised funds.
JP Morgan reckons Kelda is the second most likely UK water company to attract a takeover bid at the moment, making it a mouth-watering prospect for investors.
The FTSE 100 fell 92 points to close at 6567.1 on growing concerns about the U.S. economy. Federal Reserve chairman Ben Bernanke fuelled worries about the US subprime mortgage default crisis with some cautious comments. The Dow Jones, off almost 150 points at one stage, recovered more than half that loss to trade at 13918.2, down 53.3.
Joining Kelda at the top of the bluechip leader board was rival Severn Trent, which came back after Tuesday's fall to finish up 27p at 1370p. Severn was also upgraded by Merrill and had its price target raised by JP Morgan to 1437p. Mobile phone giant Vodafone fell 3.6p at 159.1p ahead of today's key performance indicators (KPI), which will give a first glimpse of some stats from its Indian acquisition, Hutchison Essar.
Collins Stewart reckons it should reveal two-and-a-half months of new additions to the network, running at around 1.5m a month. All this is currently playing second fiddle to speculation about what Voda is going to do with its 45% stake in US mobile group Verizon Wireless.
The phones group is likely to come under increasing pressure at next week's annual meeting as rebel shareholder, Efficient Capital Structures, which wants it to offload the stake and return £38bn to investors, is planning to land a few blows on chief Arun Sarin, who has resisted the plan.
Goldman Sachs was behind a natty little upgrade to fashion label Ted Baker, moving its recommendation to buy from neutral and raising its price target to 735p from 685p. Shares ended up 28p at 585p.
Biotech firm Vectura's move to the main market should improve liquidity of the formerly Aim-listed stock and should stir up institutional interest. Broker Bridgewell which reckons the shares are worth 110p each. They closed 1¾ p better at 78½p.
The junior market welcomed the Griffin Mining chairman Mladen Ninkov's new venture, Spitfire Oil. The exploration firm - which has assets in Western Australia - enjoyed a strong debut, gushing ahead from a 60p start to close the session at 77½p.
• More than half the shares in Aim media minnow CSS Stellar changed hands as talk raced through the market that non-executive Duncan Soukup had offloaded his 29% stake. Soukup tried, unsuccessfully, to vote off the board at a recent extraordinary meeting in an bid to seize control of the firm. Gartmore, which backed Soukup's coup attempt, is also thought to have sold its 14% holding. Shares firmed 5½p at 42½p.
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