Pre-results jitters put Pearson among Monday’s sharpest fallers.
Ahead of its full-year figures due Friday, Pearson faded 3.9 per cent to 642.5p. Since a profit warning in late January, the textbook publisher had rallied as much as 17 per cent amid hopes of another round of cost-cutting.
But Pearson has already spent £610m on restructuring since 2013, to net cumulative savings of just £586m even before reinvestment, said Berenberg.
“The issue is not that the business was fat, but that it was over-earning,” said Berenberg, which put a 400p target on Pearson shares.
Margins for higher education courseware of over 30 per cent “will never return”, which means Pearson “faces serious structural and cyclical issues, which will continue until industry profits have normalised at much lower levels”, Berenberg said.
The broker also dismissed the chances of industry consolidation, arguing that antitrust regulators would not allow Pearson to expand its 40 per cent US market share.
“With no easy cost savings, relatively high leverage, and no potential to sell a cleaned-up Pearson to a competitor, we think private equity will steer clear,” it added.
A mixed wider market pulled the FTSE 100 flat. The index ended 0.1 point lower at 7,299.86 on volume depleted by a US market holiday.
Unilever alone took 12 points off the FTSE, losing 6.6 per cent to £35.48, after Kraft Heinz abandoned its $143bn takeover proposal
Merlin, the tourist attraction operator, added 2.4 per cent to a record high of 501.5p. Barclays, repeating “overweight” advice, said it saw material upside potential to 2017 estimates, given London weekend hotel bookings are running well ahead of consensus expectations.
A relief rally carried Royal Bank of Scotland to the top of the blue-chip risers, up 6.8 per cent to 258.9p, after it scrapped plans to sell its Williams & Glyn unit.
Rolls-Royce jumped 6.3 per cent to 708p after Goldman Sachs upgraded to “buy” with a £10.30 target price.
It forecast Rolls’ free cash flow generation to hit £1.5bn in 2020, from just £100m last year, as pension deficit payments diminish and engine-related accounting adjustments reduce.
Hospital operator Mediclinic faded 3.1 per cent to 802p on a Jefferies downgrade to “underperform”, largely on valuation grounds.
Bovis Homes lost 10.2 per cent to 755p after its full-year results missed guidance set by a December profit warning.
Build-quality problems forced Bovis to cut its completions target, which analysts said would reduce 2017 earnings by around a fifth.
Tullow Oil rose 3.7 per cent to 269p on a Jefferies upgrade to “buy”.