Scardino's words fail to soothe Pearson worries

Steer clear of Charles Stanley; Get your teeth into Oasis Healthcare

Marjorie Scardino didn't depart from the script yesterday, when she presented to Merrill Lynch's telecoms, media and technology conference. The chief executive of Pearson said trading at the publishing group is as robust as when she last updated the market in April. But, between the lines, readers of the speech found a slightly more worrying story.

Since the last, dreadful annual results, Pearson has managed to convince many that the worst is over. The economic slowdown has affected revenues at its core education business, which includes technology publications and data management software for business. And the FT business, publisher of the Financial Times, has seen advertising revenues slump.

If this year's underlying performance is to be substantially better, the upturn is going to have to be sharp, because it is certainly late in coming. There is still no sign of a recovery in advertising sales at the FT group, Ms Scardino said yesterday, while the technology publishing and corporate training businesses "continue to suffer".

Most worrying of all, referring to the textbooks-for-schools business that has a market share of roughly a third in the US, Ms Scardino said states' spending "is holding up well at this stage and we expect to meet, or beat, our market share expectations".

At this stage? Market share expectations? Analysts worried about the turn of phrase. What happens to the absolute numbers if, in the crucial summer months, the market as a whole takes a dive? US states' budgets are starting to come under severe pressure as tax revenues shrink to below expectations. With education accounting for almost half their spending, the states could find themselves under pressure to cut costs and choose to keep last year's books rather than axe teaching posts.

Pearson's earnings could still rise this year thanks to a reduced interest bill and lower spending on internet ventures, but the shares still trade on 26 times Investec's forecasts of this year's pre-exceptional earnings. Sell.

Steer clear of Charles Stanley

Charles Stanley, the tiddly investment bank and provincial stockbroker, has been hit hard by sharp falls in the equity markets. Its private investor clients have had their fingers, their hands and half their arms burnt by the technology rout and are staying away. And corporate finance work is hard to come by as companies decide not to brave the market either.

Like many in its industry, the chairman, Sir David Howard, will not say when he expects a significant upturn in business. The most positive he dared to be yesterday was to hope for "solid achievement" this year.

The bank is a sound enough business, with a strong balance sheet, but the shares have been held back since a shock profit warning last October. The company tried in vain to put an upbeat spin on its dire results, which showed pre-tax profits dropping by a half to £7.71m in the year to 31 March. The figures were at the low end of analysts' forecasts and sent the shares down 4.5 per cent to 243.5p. Even so, the results follow two record years and were still the third best in Charles Stanley's history.

Sir David – whose family control 45 per cent of the company – insists the group can weather the market malaise and use its £23m cash pile to buy rivals on the cheap. It has already bought Scotland's Torrie & Co and a stockbroking firm on the south coast of England.

Acquisitions should help Charles Stanley record growth this year. Earnings per share are forecast to rise 40 per cent, putting the shares on a multiple of 14. That's not demanding, but investors should steer clear until there are signs of recovery in equity markets.

Get your teeth into Oasis Healthcare

Open wide, this won't hurt a bit. You may feel a tingling sensation – it could be the excitement of watching a new business being created in front of your very eyes. Oasis Healthcare is assembling a chain of UK dental practices, buying up local dentists and extracting extra sales and profits from them.

There was evidence in its latest annual results yesterday that the benefits are already starting to come through. Pre-tax profit for the year to March was £1m, after a small loss in the previous year. And, encouraginly, earnings from its 17 oldest practices were up by some 15 per cent.

Oasis bought 30 practices in the year, and is still snapping them up. It bought one in Burton-on-Trent and one in Kidderminster only yesterday, taking its total to 71. The group is on a sound financial footing, thanks to a £25m debt facility negotiated in the spring, and could buy up another 30 practices in the coming year.

The large group can make savings from introducing new IT systems and refurbishing practices to enable them to take on more complex dental work, such as implants and cosmetic work. The strategy is to attract lucrative private patients, and reduce practices' dependence on low-margin NHS customers. The shares, up 1.5p to 41.5p, are worth getting your teeth into.