Berenberg raises target price on ‘sell’ rated Pearson

Analysts at Berenberg raised their target price on media firm Pearson from 400.0p to 450.0p on Friday, but stated the group's incoming chief executive, Andy Bird, faced "material challenges".

In Berenberg's view, Pearson was too geared to students aged 4-18 in mature markets and with a declining birth rate, it stated that demographic did "not offer growth" and also pointed to stiff competition in the market already as putting pressure on profits.

"We think there are more opportunities in lifelong learning, but Pearson's exposure to that segment is limited," said the analysts.

The German bank added that to fix the group's publishing unit, and reorientate towards growth opportunities, Pearson needed "an earnings reset", leading it to also reiterate its 'sell' rating on the firm as short-term consensus earnings looked "too high".

"We believe consensus estimates for Pearson are, yet again, too high. Higher education courseware forecasts imply a 5% decline in H2, versus 14% in H1. This seems unrealistic given the likely hit to enrolments, a trend for lower units per student, and closure of some campus bookstores," said the analysts, which placed their headline operating profit estimates 14% below consensus for 2020.