Pearson profits set to drop next year, says Berenberg
Shares in publisher Pearson were under the cosh on Monday as Berenberg said the company was "far from a turnaround" and profits are likely to decline in 2020.
FTSE 100
8,095.26
11:00 25/04/24
FTSE 350
4,445.92
11:00 25/04/24
FTSE All-Share
4,399.47
11:00 25/04/24
Media
11,710.64
10:59 25/04/24
Pearson
988.60p
10:59 25/04/24
The bank, which rates the stock at 'sell', said it was cutting its estimates to reflect the fact that the K12 school textbook business has now been sold, FX has deteriorated versus the basis on which guidance was set and the profitability of the US education business was notably below Berenberg's expectations last year, making a lower base from which to form its 2019 projections.
Berenberg said conditions will remain exceptionally difficult in the US higher education courseware business, with competitors introducing new, lower-cost business models that answer students’ requirements for cheaper, quality materials. The bank said Pearson is likely to lose market share to these new models.
"We believe Pearson is far from a turnaround, given the high operating leverage at its US higher education courseware business, which faces major structural and countercyclical headwinds.
"In the short term, the numbers may be sustained by cost savings, but as early as next year, savings will be neutralised by general cost inflation, and we therefore expect profits to decline in 2020 versus 2019."
Berenberg said the current valuation fails to reflect this "very challenging" outlook for earnings.
It retained its 600p price target on the stock.
At 1240 GMT, the shares were down 3.6% to 870.20p.