Barclays reinstates coverage of Pearson at ‘equalweight’
Barclays reinstated coverage of Pearson on Thursday with an ‘equalweight’ rating and 725p price target, after US investment manager Apollo said it would not be making an offer for the educational publisher after failing to agree terms.
"The Pearson story has been significantly complicated by the macro backdrop and by the bid from Apollo (now withdrawn)," said Barclays.
"We had based our prior ‘underweight’ on the view that Pearson required exceptional execution to turn the business around and drive the growth and margins that they expect by 2025 while hope in the market was pretty high."
Barclays said that despite an uncertain macro situation, it thinks the company is well placed to at least approach its profit guidance for 2022, "and that has scarcity value now".
The bank also said that education is a defensive revenue stream, Pearson has minimal exposure to Russia, modest exposure to inflation, and a buyback will run through 2022.
It noted Apollo’s third offer of 870p a share for Pearson and said the debate on whether it is too expensive on 4% free cash flow yield and 18x price-to-earnings in 2023E "looks a little specific against this backdrop".
At 0940 BST, the shares were up 2% at 754.20p, having tumbled on Wednesday after Apollo abandoned its takeover pursuit.