Barclays retains rating on Pearson, despite admissions fears

The bank, which has an ‘equal weight’ rating on the stock, said that the impact of 2020 college enrolments is “clearly the number one short-term issue” for Pearson currently.

The Covid-19 pandemic has kept both school children and university students at home, and some institutions – including Cambridge University – have already confirmed that lectures will stay online next year. That has prompted growing speculation that students may defer starting university, causing admissions to fall significantly in September.

Following analysis of college reopening plans and recent surveys, Barclays said it was now predicting “-15% enrolment decline in 2020 in Pearson’s footprint, down from -7%, and 2021 is 7% below 2019”.

It continued: “We then look at all information provided on units sold and revenue per unit to model college courseware revenue growth. Our 2020 organic growth this unit moves to -21% from -16%, with 2021 at 0% from -4%.

“We make modest changes to other forecasts, and this drives a 19% and 7% hit to earnings per share in 2020 and 2021: 28% and 13% below consensus.”

However, while it conceded these were “big numbers”, Barclays argued: “We think buy-side expectations, particularly on enrolments, are far below sell-side. It leaves Pearson on 15x price/earnings in 2021: not cheap versus other names with fewer risks. But peers in online learning have rerated sharply, and Online Programme Management/Virtual Schools now have around £1.2bn of combined value in our SOTP, despite being a small part of profit.”

It concluded: “With little downside, we remain ‘equal weight’.” Barclays also left its price target of 500p unchanged.

As at 1345, Pearson was trading 1% lower at 532.40p.