Investors in Yell had something to cheer about today, with shares in the struggling directories group topping the FTSE 250 after its third quarter figures.
The company reported a 13% decline in third quarter revenues to £540m, but at least that was better than the 16% drop the City had been expecting. Pretax profit of £86m was ahead of the £56m forecast, helped by lower interest payments as it made moves to tackle its hefty debt mountain, cutting it by about £1bn to £3bn. The company said it was seeing early signs that the rate of revenue decline as stabilising, and it expected adjusted earnings of at least £600m for the full year. The news has lifted the company's shares 3.35p to 40.15p. But Lorna Tilbian at Numis still has a sell recommendation on the shares:
We expect to leave our EBITDA forecasts broadly unchanged though our pretax profit and earnings forecasts of £230m and 12p for March 2010 and £240m and 7p for March 2011 are likely to nudge up due to lower interest. We remain concerned by the structural pressures facing Yell's print business (80% of revenues) and its still high debt levels.
With excessive gearing, exposure to vulnerable sectors and geographies and structural pressure in the core print business we remain of the view that Yell is a high risk investment. We retain our reduce recommendation.
But Simon Whittington at UBS was more positive, keeping his buy recommendation:
Overall, this looks to be a very good set of results for a stock where the mere absence of bad news often comes as a relief.
Guidance is for fourth quarter revenue to be down 16% given the historically weaker [final three months], but this is stronger than expected (UBS estimate was a 17% decline) and suggests we are likely to have past the inflexion point in revenue declines and we believe the first quarter of 2011 will show a further improvement.
Management tone is cautiously optimistic, citing improving sentiment amongst the customer base, and ongoing stabilisation in declines. However, the bears may pick up on internet growth which, while still strong, has continued to slow.
