BULL POINTS:
■ Web-based growth
■ Progress on costs
BEAR POINTS:
■ Sales and profits still sliding
■ Still depends on print media
■ Huge debt burden
■ Further equity may be needed
Admittedly, some life is returning to the depressed market in advertising. Advertising agency Group M, for instance, forecast in June that advertising spend during 2010 would rise 2.1 per cent in western Europe, and by 3.5 per cent worldwide. But that's not much help to advertising directory specialist Yell. Indeed, when Yell announced its first quarter figures last month it emerged that organic revenue had slumped 10.6 per cent year-on-year, with cash profits down 11 per cent.
| IC TIP RATING: | |
|---|---|
| Risk rating: | High |
| Timescale: | Long-term |
| What do these mean? Find out in our | |
Naturally, Yell isn't exposed to the advertising cycle in the same way as the sector's other big names. Unlike such players as ITV or Trinity Mirror, Yell relies on an army of small businesses to advertise in its directories. But, with economic conditions still tough, those businesses continue to struggle. Indeed, management says the economic recovery is proving slower than expected and forecasts that group organic sales will fall 11 per cent in the second quarter.
Trading is proving especially tough in Yell's UK business, where first-quarter cash profits slumped 17 per cent year-on-year and organic revenues fell 13 per cent. While in Yell's Publicidad operation – covering Latin America and Spain – the Spanish business reported that organic revenues had fallen 10.5 per cent. The Spanish yellow pages operation, Paginas Amarillas, was hit harder still with first quarter revenues down a painful 21 per cent. "Economic pressures have severely affected the Spanish market and have driven a reduction in print advertisers and yield," said Yell's management. The US Yellowbook operation, responsible for nearly half of group revenues, is struggling, too, with first-quarter sales down 10 per cent.
| ORD PRICE: | 22p | MARKET VALUE: | £519m | |
| TOUCH: | 22-23p | 12-MONTH HIGH/LOW: | 81p | 21p |
| DIVIDEND YIELD: | NIL | PE RATIO: | 3 | |
| NET ASSET VALUE: | 60p | NET DEBT: | 210% | |
| Year to 31 Mar | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2007 | 2.08 | 248 | 25.9 | 16.0 |
| 2008 | 2.22 | 311 | 24.8 | 11.3 |
| 2009 | 2.40 | -1033 | -124.1 | nil |
| 2010 | 2.12 | 70.3 | 3.4 | nil |
| 2011* | 2.02 | 250 | 7.3 | nil |
| % change | -5 | – | – | – |
*Numis Securities' estimates (Profits & earnings not comparable with earlier years) Normal market size: 120,000 Matched bargain trading Beta: 1.4 | ||||
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What's more, and despite having raised £660m of capital through a share issue in November, Yell's debt remains heavy at about £3bn; in the year to end March that meant a chunky £341m finance charge. True, the fund raising came with a renegotiation of Yell's banking facilities, so the group has a reasonable degree of headroom regarding debt-to-cash-profits loan covenants. But analysts at broker Numis Securities see that headroom tightening substantially by 2013, suggesting that more equity could yet be needed. The likelihood that investors will be tapped for still more cash may have grown since chief executive John Condron and finance director John Davis, both announced plans in May to step down. "We believe new management is likely to increase investment, particularly online, and see a strong likelihood of a further equity raise," says Numis.
But management has identified £60m of cost savings that Yell should benefit from during the course of 2011-12. And the group’s online business has continued to grow - first-quarter online revenue grew 9.7 per cent year-on-year. However, Yell's online side still only generates 25 per cent of group revenue, leaving Yell still reliant on print when advertising growth is firmly fixed on media such as the internet and mobile apps. That must raise doubts about the long-term viability of Yell's business model.
