Broker tips: Pearson, Future, Haleon

5th Jun 2024 15:18

(Sharecast News) - Citi opened a 90-day "positive catalyst watch" on Pearson shares on Wednesday as it pointed to an attractive risk/reward.

"While we think new CEO Omar Abbosh's business and strategic update in July will formally signal a pivot from value to growth for Pearson, lengthening its duration as an investment, we don't see major earnings risk and note leverage-neutral valuation is toward decade lows," the bank said. "Accordingly, we think overall risk/reward is attractive (base case 1,170.0p but upside to 1,550.0p on best case)."

The bank maintained its 'buy' rating on the shares.

JPMorgan has recommended keeping an 'overweight' position in shares of Future despite the huge jump in the British publisher's stock over the past year, saying the investment case was still "compelling" at these levels.

"With CEO Jon Steinberg at the helm for just over one year, we see clear signs that Future's Growth Acceleration Strategy is bearing fruit on underlying performance, at a time when the tide is turning on end markets with green shoots of recovery in digital advertising," the US bank said.

JPMorgan, which has a 1,464.0p target price on the stock, said the current valuation - with an enterprise value-to-EBITDA ratio of just 5.5 - reflects earnings risk and "lingering concerns on portfolio resilience, amid a higher-for-longer rate environment".

"[At the current valuation], the market subscribes little value to Future's B2C and B2B assets, while disregarding optionality on GoCompare. As a next step, we see Future's equity story increasingly aligning to its sum-of-the-parts with management actively flagging optimising the portfolio as an additional step to create value," the bank said.

JPMorgan said Future's new structure should enable "strategic flexibility", paving the way for a potential sale of GoCompare, which the bank values at £740.0m.

Berenberg initiated coverage of consumer health company Haleon on Wednesday with a 'buy' rating and 407.0p price target, stating that its investment case was based in part on the US launch of Eroxon, which it expects to drive better-than-expected organic sales growth of 5.8% in 2025.

Berenberg said the opportunity from the US launch of Eroxon - the first-ever over-the-counter erectile dysfunction topical cream - was "substantial". It noted that among men of all ages, 20% suffer from ED, but the condition was more pronounced in older age groups, as 50% of over 40s experience ED.

"Importantly, 80% of men who suffer from ED are not taking any treatment, meaning the addressable market for Eroxon is significant," it said. "We conservatively estimate that the US rollout will improve group organic sales by an average of 0.8pp in its first five years (2025-29). We note that there are already encouraging signs from the rollout of Eroxon in the UK and Belgium, with the brand gaining 20% share in its first 12 months."

The bank's investment case was also based on Haleon's exposure to attractive categories that it expects to grow 4.6% in the medium term, above Berenberg's forecast sector average of 4.1%; and the stock trading on a valuation discount of 17% to key household and personal care (HPC) peers. Berenberg also noted that Haleon trades on a 12-month forward price-to-earnings of 17.3x.