Why I'd still avoid shares in this FTSE 100 basket case

Shares in troubled education publisher and FTSE 100 constituent Pearson(LSE: PSON) climbed over 4% in early trading this morning as the company reported its latest set of interim figures to the market. Should long-suffering holders -- some of whom will have seen their positions fall over 55% in value since March 2015 -- take this as an indication that the company is beginning to turn the corner? I'm not convinced. Indeed, I think the shares should be avoided by all except the most contrarian of investors.

Good progress?

Perhaps we shouldn't be too harsh. Pearson did at least manage to achieve underlying revenue growth of 1% in the first half of 2017 to just over £2bn. This was attributed to better sales and lower returns in the company's key North American higher education courseware business and "modest growth" in its computer-based testing division. Sales growth was also seen in Australia, China and South Africa. That said, the impact of these gains was reduced by "expected declines" in US school assessment, economic concerns in Brazil and as a result of Pearson exiting markets in the Middle East.

Thanks to recent restructuring and favourable currency fluctuations, adjusted operating profit rose to £107m from just £15m in H1 2016. Full-year profit guidance was maintained at between £546m and £606m.

Pearson now intends to continue simplifying its business and reduce costs by an extra £300m by the end of 2019. In addition to cutting roughly 3,000 jobs, savings will be generated from greater use of shared service centres, increased automation, changes to procurement and office closures.

Of course, slashing costs will always be popular with investors. Nevertheless, few are likely to be cheering the 72% reduction to the interim dividend, even if the company does plan a share buyback of £300m following the sale of its stake in Penguin Random House. While the former was seemingly inevitable, it does beg the question as to why anyone would choose to invest in Pearson over far more stable companies at the current time, particularly as its stock still trades on a still-rather-dear valuation of 14 times earnings.

A recovery in fortunes isn't beyond the bounds of possibility but -- following today's dividend chop -- I'd continue to avoid Pearson for now.

A far better buy

Although very much a market minnow in comparison, I still think Harry Potter publisher Bloomsbury(LSE: BMY) is a far better buy.

In its recent Q1 trading update, the £129m cap reported a 19% year-on-year rise in total revenue for the three months to the end of May (13% in constant currencies). While much of this can be attributed to encouraging performance in its Consumer division, its Non-Consumer counterpart also registered a 16% rise in sales of digital resources. Bloomsbury Popular Music seems to be winning fans in academic library trials and Bloomsbury Professional Online has, according to the company, had a "strong start" to the year. Recent months have also seen the release of law resources and the company's Design Library.

The publication of two new Harry Potter-related books in October to coincide with an exhibition at the British Library should go some way to helping Bloomsbury meet analyst expectations of 14% earnings per share growth in the current financial year.

Although never likely to fly in price, the decently-covered 4% yield on offer suggests that Bloomsbury is one stock worth tucking away.

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Paul Summers has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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