Deutsche Bank upgrades Pearson to 'buy'

Deutsche Bank upgraded Pearson on Tuesday to ‘buy’ from ‘hold’ and hiked the price target to 900p from 625p as it said the educational publisher was "turning over a new leaf".

"After a period of decline driven by structural issues in the US courseware market, we think Pearson is now back on the path to sustainable growth as it recaptures the second-hand textbook market and innovates its offering," DB said.

"The journey has been -painful with several years of restructuring, but with the strategy tangibly progressing we turn more constructive."

The bank expects a 5% group revenue compound annual growth rate over 2021-25E and operating margins to expand from 11% to 15%.

It noted that despite the company’s return to growth, the shares trade on 17x 2022E consensus price-to-earnings, at a discount to its two-year trading average and peers.

Pearson offers a dividend yield of around 3% and a buyback yield of around 4.5%, it said.

At 1040 BST, the shares were up 1.5% at 783.60p.