Pearson slumps on Berenberg downgrade

Education publisher Pearson was under the cosh on Wednesday after Berenberg downgraded its stance on the stock to ‘sell’ from ‘hold’, cutting its estimates to reflect the risk of severe disruption to college enrolments in 2020 and less favourable FX rates.

"A combination of students not wanting to pay for a non-campus experience, a fall in international students and, for some, economic distress making it too difficult to go to college, is likely to cause severe disruption to college numbers in the latter part of this year," it said.

Berenberg, which cut its price target to 400p from 450p, said its estimates are now 22% lower than consensus for 2020 and 7-8% lower for 2021 and 2022.

The bank now assumes a 10% decline in student enrolment in autumn 2020.

"A number of surveys suggest that there is risk to the downside here, with students not wanting a virtual experience in place of campus in-person education," it said. "Meanwhile, severe economic disruption will make it harder for many students to even afford college. Those that can afford it will doubtless look even harder for lower-priced courseware materials, which could also accelerate the decline in Pearson’s courseware revenue per student."

Berenberg’s new forecast for US college courseware revenue in 2020 is a decline of 15.8% versus a drop of 11.3% previously.

At 1100 BST, the shares were down 3.6% at 444.24p.