From BMOYellow Media Inc. (YLO-TSX) (BMO)
Stock Rating: Underperform
Lowering Estimates Again; Balance Sheet
Challenges Warrant Downgrade to Underperform
Event
Lowering estimates and downgrading Yellow Media to Underperform.
Impact
Negative.
Forecasts
We are lowering our 2012E EBITDA estimate by 9% and assuming longer-term
trends reflects a 10% decline in print revenues.
Valuation
We have lowered our one-year target price to $1.50, reflecting ~4x 2012E
EBITDA. Given leverage levels and growth challenges, we believe the equity
value of Yellow Media is questionable over the medium term.
Recommendation
We are downgrading our investment rating to Underperform. We have modeled
a 10% decline in print volumes going forward, offset somewhat by lower
margin online growth. These growth parameters imply a sharp decline in cash
flow over the medium term, one that is, in our view, dangerously low relative to
debt levels, even pro forma Traders and potential dividend cuts. We think a
material dividend cut concurrent with the release of Q2 results on August 4 is
likely.