Investec reiterates 'hold' on Pearson after Bertelsmann deal; Liberum a 'sell'

The sale is designed to bolster Pearson's balance sheet, with £300m to be given back to shareholders in a buyback.

Investec said it had forecast a halving of the Pearson dividend later this year as the company looks to strengthen finances and pay off debt.

"There is no change to underlying business challenges, but this looks a tidy deal in our view to retain 25% of a cash generative business and helps the balance sheet," Investec said in a note.

However, peer Liberum suggested the stock was a 'sell'.

"Pearson’s conference call on its disposal...does not seem to have gone well with investors. We suspect one of the main issues is on the dividend, which Pearson’s comments suggesting a dividend level in the mid to high teens pence level, or only a 2%+ dividend yield, which will deter income investors but also would seem to suggest that Pearson is concerned over the need to protect its balance sheet moving forwards," the broker said in a note.

"Our view is that the return of only £300m of the £780m raised via share buybacks suggests that Pearson realises it needs to protect its balance sheet, which management seemed to suggest was the case, noting the company wanted to protect its credit rating."