Proactive Investors - Pearson PLC (LON:PSON) received a boost after analysts at UBS put the educational publisher back on its 'buy' list, highlighting potential for its assessment & qualifications (A&Q) business.
The upgrade, from 'neutral', helped propel the firm to the top of the FTSE 100 risers list, up 2.7% at 839.60p.
The broker set an increased share price target of 970p, up from 930p, implying 16.4% upside from current levels.
UBS noted Pearson shares are down 13% year-to-date, impacted mainly by disappointing financial year 2023 guidance and concerns around how generative artificial intelligence (AI) could impact its higher education business.
But the bank sees “positive operating momentum in the business", and thinks "assessment & qualifications will outperform consensus expectations, potentially materially".
A&Q makes up around 54% of group EBIT and UBS has identified a number of strategic opportunities that imply A&Q could sustain growth at 6% per annum in an “upside case”.
UBS is forecasting 5% growth in the division, up from 3% before, and above the market consensus of 3-4%.
But it has identified four strategic opportunities for A&Q with a combined c£550mln revenue potential.
These are: Pearson VUE expands its number of partners if supervised assessments replace coursework; US student assessment recovers to its peak market share; benefits from an increasing number of US public schools conducting mental health assessments; and EdExcel increases its number of students from international markets.
Forecasts for the higher education division remain cautious “but there is upside risk if new leadership can deliver improvement in market share in line with guidance”, UBS added.