RE: RE: Re: CIBC review OUT OF DATE?CIBC report has been disclosed on May 5, 2011. Here's a portion of the report:
May 5, 2011 Canadian Media
Yellow Media Inc.
In-line Q1 And Forward Tone - Buyback For 50 Mln.
Shares Is In The Works
We had anticipated a modest Q1 for YLO, and these results were largely in line, with the focus squarely on directories after the deal to sell the Traders asset. With the stock getting hammered in recent months, management announced a material share buy-back program starting next week.
Q1 takeaways:
1) NCIB announced to purchase some 50 million shares over the next year;
2) Directories results modest, as expected;
3) Online revenues now represent ~25% of consolidated revenues, net of Verticals segment; and 4) Management outlook remains consistent.
Q1 revenues of $349.4 million were in-line with our $353.0 million estimate. Adjusted EBITDA of $190.0 million was also bang on our estimate of $189.7 million. Adjusted EPS of
.23 was bang on our estimate of
.23 and
ahead of the Street of
.19.
YLO is performing as expected, with little sign of accelerating structural decline. The outsized yield is safe in the NT, and an NCIB should allay some pressure from record short positions. However, we remain at SP with a $5.50 target (from $6.50), lowering on conservatism given business risks.
Focus Squarely On Directories Business
1. Q1 results in-line with our expectations. We had expected another modest quarter from Yellow Media (YLO-SP), and these results were largely that. After the March 25 agreement to sell its Traders Media segment, all
eyes are now squarely on the company’s core Directory business. Top line revenues came in-line with our estimate ($349.4MM vs. $353.0MM estimate), representing a modest 2.9% increase y/y, albeit with acquired growth embedded. Adjusted EBITDA was also bang on our estimates ($190.0MM vs. $189.7MM estimate), but down 4.3% y/y as lower margin digital businesses, Mediative and Search Engine Solutions, become a larger part of the business mix. The quarter saw the launch of Yellow Pages 360 Solutions, which consolidates YPG’s print and digital services, which should help accelerate uptake of online services.
2. Operating metrics continue to experience pressure, however overall business remains largely on track. The core directories business undoubtedly faces structural challenges, but despite pressure on the print segment, YPG continues to make progress on its digital transformation, with online now representing ~24% of consolidated revenues (versus ~18% in Q1/10). As largely expected, the increased exposure to digital has had a negative impact on EBITDA margins which still remain quite attractive despite a ~400 bps decline in the quarter (58.46% in Q1/11 vs. 54.37% in Q1/10). Operationally, all metrics looked in line with expectations. Client renewals remained steady at 88%, and average revenue per advertiser (ARPA) was largely flat y/y. While advertiser count was down 5.0%, this
actually represents an improving sequential trend (-6.1% in Q2/10, -5.4% in Q4/10 and -5.2% in Q4/10). Compared to most international comps, YLO stands at a much more favourable position, with print losses which are significant, but not accelerating.
3. YLO initiates large buy-back program. Yellow Media plans to implement a normal course issuer bid (NCIB), with an intention to purchase for cancellation up to 10% of the public float of both common and preferred shares outstanding, or roughly 50 million shares. Since Q4 results were announced on February 9, YLO’s stock price have fallen materially, dropping over 26%, and pushing the company’s dividend yield up to 14.5%. The company had not specifically earmarked ~$245 million of Traders’ proceeds, and we had expected a buyback was in the cards. We believe this NCIB to be quite active, given where the shares are trading at today. Since late 2010, the short interest in the name has increased significantly, up to 65.9 million shares as of April 15, representing nearly 10% of shares outstanding. An active buyback, which should be in place as early as next week, should allay some pressure from these short positions.
4. Very cheap, and payout safe, but maintaining Sector Performer rating and reducing target to $5.50 due to conservatism. The Yellow Media story is not without challenges, but the company is clearly performing as expected. While some remain concerned about the payout, given the high current yield, we continue to see no issues in the near-term, and do not see management cutting the dividend simply because the yield is too high. And while an increasing short position has pummeled the stock recently, the NCIB announced in the quarter should provide some protection as the company ramps up activity on the buyback. Fundamentally, risk still remains in the name and we believe that investors may need to see a few quarters of execution evidence before giving YLO more valuation support. As such, we continue to rate YLO at Sector Performer, as the recovery remains a slow one for the company. We have decreased our price target to $5.50 (from $6.50), reflecting conservatism and the short pressure intentions, which is difficult to assess. This target represents a full multiple discount below its closest industry peer, PagesJaunes in France.