YELL publishes classified advertising directories in the UK, United States, Spain and Latin America. Its printed directories include its Yellow Pages and Business Pages directories in the UK.
Yell has had a rough ride over the past two or three y
ears. It has a hefty level of debt – £3.6 billion – which is some 2.5 times shareholders' funds. Any company with that degree of gearing in this market is viewed with what may, at its most charitable, be interpreted as suspicion. That's why the shares have fallen from a peak of 640p in 2007 to current levels.
However, the stock has been recovering recently. The first-quarter results were better than had been anticipated, with revenue up nearly 3 per cent and a sharp increase in cashflow, which is essential for growth given its large interest bill.
Yell is not out of the woods. The paralysis in bank lending could threaten the group's banking covenants, when Yell might be obliged to introduce a swathe of cost economies including a further reduction in the dividend. Received wisdom suggests the days of "on page" advertising are numbered, with the internet, radio and television providing competition. Even so, the rating of Yell's shares is still pretty conservative, on a prospective p/e of less than three and a yield. Concern over Yell's balance sheet is likely to weigh upon the stock in the shorter-term but, as inflationary pressures ease, official concerns on this front may well be supplanted by a recognition of the greater threat imposed by recession. Any cut in interest rates would obviously be welcomed by any indebted concern, or a company with markets sensitive to consumer and commercial spending levels. Yell scores on all fronts.
• The value of your investment could fall and you may get back less than you invested. You should take professional advice if you have any doubt about the suitability of this company for your portfolio.
