Broker tips: Eurocell, Pearson

JPMorgan Cazenove reinstated its 'overweight' rating on Pearson on Thursday, highlighting the education publisher's defensive qualities.

Following the end of a restriction relating to the sale of assets in Italy and Germany, the bank reinstated the rating, with a 1,010.0p price target. JPM said it believes that Pearson was "walking the walk" and making good progress on delivering on its strategy.

"Its defensive qualities, low risk, good quality, and strong earnings momentum suggest that it has the attributes for further outperformance during the current contraction phase of the cycle," JPM said.

JPM argued that Pearson was well placed to weather a likely macro slowdown, noting that the majority of its revenues - around 60% - were non-discretionary or based on longer-term contracts with states/governments and should be defensive.

The analysts also said the company's portfolio can deliver mid-single digit organic growth and said its virtual schools segment was seeing structural growth for remote learning as the pandemic has raised awareness and broadened its acceptance.

Analysts at Berenberg reiterated their 'buy' rating on UPVC products manufacturer Eurocell on Thursday as the group continued to make market share gains.

Berenberg said Eurocell's first-half results were "robust", with the group delivering 13% revenue growth, maintaining guidance, and continuing to win new fabricator customers, supporting 2023 forecasts.

The German bank stated that with Eurocell shares now trading on a 7.8x price-to-earnings ratio, it thinks they are "compelling" given several company-specific tailwinds - including market share gains, favourable sustainability tailwinds, and margin benefits from new facilities.

Berenberg also expects the group to end 2022 with leverage of 0.3x net debt/underlying earnings, aided by a reduction in inventory, leaving plenty of optionality.

"As the benefits of the new facilities come through, we believe management's focus can shift towards M&A and supplementary cash distributions," said the analysts.

Berenberg also maintained its 310.0p target price on the stock.