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Post-election momentum to be confirmed by flash manufacturing PMIs; Pearson results eyed

The PMIs could give clarity on any potential rate cut by the Bank of England

Manufacturing

The current UK data-rich week will end with the latest flash manufacturing purchasing managers’ index (PMI), with the market looking to see whether December's post-election momentum has held up.

A positive result “will in all likelihood put to bed any speculation that the Bank of England will be cutting rates any time soon,” according to Michael Hewson, chief market analyst at CMC Markets (UK), particularly ahead of next month's UK budget - which remains scheduled for 11 March.

So far this week, we have had a mixed bag of higher UK employment, tepid average earnings, but above-forecast inflation and strong retail sales numbers, so the Bank's next call is anyone's guess.

Pearson under pressure

It may be a less jolly day for Pearson PLC (LON:PSON), fresh from a profit warning in January which pushed its shares down to a ten-year low.

The FTSE 100-listed group said then that sales for 2019 would be flat and profit in line with guidance of £590mln, but warned that not only will sales remain flat for this but profits are expected to fall to between £500mln-£580mln.

Friday’s full-year numbers will be the first outing for Pearson's new chief financial officer Sally Johnson, while chief executive John Fallon is also waiting for a successor to be appointed before he can retire.

Analysts at UBS expect a new business segmentation which could provide more visibility on profitability by business type, alongside more detail for 2020 guidance.

The educational publisher has been engaged in a series of cost-cutting exercises to offset an ongoing decline in its US higher education (HE) market, although investors are unlikely to be holding their breath that a management team in flux will come up with a more sustainable strategy to drive profitability in the long-term before a new CEO arrives.

UBS's analysts had previously thought that Pearson could sustain profit as the US courseware declines might be offset by growth in other businesses, and further costs could be removed.

“This thesis has not played out,” they admitted in a recent note, with the January update revealing declines in US HE courseware were “accelerating”, while growth in other businesses was only making “limited” contributions to underlying profit, and management did not indicate that any further costs have been removed.

Significant announcements expected on Friday February 21:

Finals: Pearson PLC (LON:PSON)

Economic data: UK flash PMIs

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