Nesbitt UpdateYELLOW PAGES INCOME FUND (YLO.UN-TSX) TIM CASEY, CFA
Rating: Outperform
Price: $16.59
Target: $17.50 á
2005A CDPU: $0.96
2006E CDPU: $1.04 â
2007E CDPU: $1.09 â
Title: Attractive Fundamentals Continue at Yellow Pages
Event: Yellow Pages Income Fund reported Q4 and full-year 2005 results.
Impact: Slightly positive. Revenue, EBITDA and cash flow were all a touch above expectations. CDPU was increased 7%.
Forecasts: Materially unchanged. We have tweaked our forecasts based on year-end performance. Our earnings outlook for 2006 includes 10.5 months of contribution from TMC. We have reduced our DIPU estimates by $0.05 to reflect a lower payout ratio (89%, down from 93%) assumption for 2006 and 2007.
Valuation: Based on pro-forma 2006E CDPU of $1.04, we estimate Yellow Pages units are currently trading at a yield of roughly 6.3%. Our target price of $17.50 reflects a slightly lower yield applied to our 2007 CDPU estimate.
Recommendation: YPG reported a strong quarter to close out an impressive year. All financial metrics continue to register strong organic growth and sequential improvement. This is as expected. As we have noted in recent comments, the near-term fundamental outlook for Yellow Pages remains very encouraging. The company appears very able to meet Street expectations in 2006. We believe the financial results over the next six quarters or so will reflect impressive growth at the high end of management’s guidance range. Management continues to increase distribution while maintaining and slightly lowering its payout ratio. Based on fundamentals, Yellow Pages is rated Outperform.