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Pearson now overly complicated, says Jefferies

Pearson has morphed into a bewilderingly complicated and opaque business, reckons US broker Jefferies....

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Pearson completed the sale of the FT to Nikkei earlier this year...

Education publisher Pearson (LON:PSON) has 'morphed' into a bewilderingly complicated and opaque business, reckons US broker Jefferies, which has slashed its target price to 685p from 1,070p.

The broker also repeated an 'underperform' stance.

It has been a year to forget for the firm and the group's shares are down 35% since the beginning of' 2015..

David Reynolds,Jefferies analyst, notes that North America is clearly the problem child and the prospects for 2016 are not that rosy.

"Chances of further restructuring must be pretty high and the sustainability of the dividend questionable," he says.

He reckons Pearson is now difficult to read, has limited visibility and is a "nightmare" to model.

"The profit warnings elucidate that reality. A tough stock to call here, we see the risks tilted to the downside, cut numbers (again) and maintain the Underperform,"  he says in a note.

Conversely, the same broker is more positive on utility giant Centrica (LON:CNA) in its move towards cash preservation though it does cut the price target to 250p from 320p.

"Centrica's share price has been hit hard by the fall in oil and gas prices since September.

"This is understandable given that lower commodity prices hit earnings and asset values in their E&P operations.

"But investors maybe overlooking the transformation of Centrica's cash position and therefore its ability to support the dividend," says analyst Peter Atherton, who rates shares a 'buy'.

The fall in the commodity prices is likely to hit operating cash flow by only around £150mln a year, he says.

"So should investors be focusing more on cash flow and dividend security rather than earnings volatility?" is the question he poses.

Glencore's (LON:GLEN) investor update call has reassured Myles Allsop at Swiss broker UBS.

He repeats a 'buy' call on the commodities behemoth and the target of 180p is unchanged.

The update "starts to rebuild credibility," he says, with management clearly starting to deliver on its plan to cut debt, and offering more transparency on the performance of the business and willing to take further action if needed.

"We expect the share to re-rate over 6-12m as mgmt delivers on promises to cut net debt but see a risk it remains depressed for a period of time if commodity prices do not pick up," he says...

Japanese broker Nomura looks at European oil services sector updating its global spend estimates and it reckons a 20% fall in 2016.

Overall capex in the space is cut to  US$452bn from US$ 545bn driven by factors, including lower exploration capex led by lower offshore seismic activity and ultra-deepwater drilling demand and fewer deepwater projects sanctioned over the medium term along with delays in the award of expected contracts.

"Against a weak oil macroeconomic backdrop, we expect exploration spend to fall by 40% y-o-y in 2016, placing industry budgets at pre-2004 levels.

Constellation Healthcare (LON:CHT) said today it had struck a deal to acquire MDRX Medical Billing, an American hospital and private practice support services group.

The deal is supported by a share placing which is raising £30mln (US$45mln), with 16.4mln new shares issued to new and existing institutional investors at a price of 160p.

House broker FinnCap said that assuming the placing at 160p and the targeted cost savings are completed, it has upgraded its 2016 EPS (earnings per share) estimate by 10% and for 2017 by 9%.

It has also raised its price target on the stock by 11% to 310p - which is around 78% higher than the current price of 173.5p.

"Our new target price of 310p includes 251p for the existing business and 59p for potential additional value from future acquisitions. We believe that this additional value could largely be created by reinvesting internally generated cash flow over the next two years but expect the group to refinance debt facilities shortly," said analyst Guy Hewett.

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