Berenberg lowers target price on 'sell' rated Pearson
Analysts at Berenberg lowered their target price on publishing and education group Pearson from 620.0p to 525.0p on Monday, stating the firm now appeared to be "bottom of the class".
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Berenberg, which maintained its 'sell' rating on the stock, said 2019 had proved to be "another testing year" for Pearson investors and believed that 2020 could offer more of the same.
The German bank said that an accelerated deterioration in the higher-education courseware market would likely have a "significant impact" on the following year's numbers as well.
While Pearson downplayed the importance of higher-education courseware by focusing on its revenue contribution (of around 25%), Berenberg said the reality of the numbers was that it was a "much more important driver of profitability".
"We think management will guide cautiously when it provides its next update in mid-January," said Berenberg.
"Consensus is still too high for 2020 earnings, in our view, and even if the buy-side knows this, we think a raft of sell-side downgrades will maintain negative pressure on the stock."
Coupled with the absence of one-offs that benefited operating expenditures, tax and interest in 2019, and far lower incremental savings in 2020 than in the prior years, Berenberg added that earnings per share guidance could be in the mid-40.0p per share range.
"We maintain the view that current multiples do not reflect sufficiently the earnings deterioration of the group, and reiterate our Sell rating with a new price target of 525p."