Exane downgrades Pearson on US school concerns
Pearson shares were downgraded by Exane BNP Paribas after an "unwarranted" rebound in the face of fresh concerns over the group's ability to return to growth in North America this decade.
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Exane, which downgraded Pearson to 'underperform' and cut its target price to 550p from 600p, said it was increasingly sceptical about North America in light of new concerns about the sustainability of double-digit growth in the US virtual schools business, the London-listed group's fastest growing segment in the continent, accounting for roughly 6% of group revenues.
The bank's analysis of the penetration of Open Educational Resources in US schools -- free online learning materials that have put a big dent in its business -- suggested a "rising risk" to US school courseware revenues, which are about 9% of group sales, with more than one million K12 students now in schools which are in the process of implementing an OER policy.
Moroever, online language learning platforms "are gaining share against traditional language schools and English courseware businesses, which does not bode well for Pearson’s English revenue growth".
Exane analysts Sami Kassab and William Packer cut their 2018 estimates for adjusted earnings per share by 5% to 45.7p and 2019 EPS by 7% to 45.6p, so they now stand at the low end of guidance for the current year and 5% below consensus EPS for 2018.
Pearson shares, which also went ex-dividend on Thursday, fell 4% to 622p by 1100 BST.