Yellow Media Group

Description
Yellow media Inc. (YLO) is a Canada-based company. The Company operates in two segments: directories, which refers to the print, online directories and guides and vertical media, which refers to the print and online vertical publications of the Company. YLO is a digital and print local commercial search provider. It operates online local search platforms, including YellowPages.ca and Canada411.ca, as well as the CanadaPlus.ca sites. In addition, it is the directory publisher for Bell Canada, TELUS Communications Inc., Bell Aliant Regional Communications LP and for a number of other telephone Companies. YLO is the owner of the Yellow Pages, Pages Jaunes, Walking Fingers & Design and Canada411 trademarks in Canada. The Company operates its vertical media services, through Trader Corporation (Trader). Trader has over 140 publications and 20 Websites, covering four product verticals: automotive, real estate, generalist and employment.

This company was once a wonderful growth company from Canada. Its revenues were booming year after year. Yellow pages is now trying to divert its business line using web services throughout Trader. It is still loosing money every month.

Financials
Balance sheet is not so clean. If you cut the goodwill, this company is worth nothing (book value). It actually turns negative. We definitly cannot play this investment as a “value oriented investment”. MOS is null based on balance sheet.

Revenues are great and margins are high (50%+). Everything is fairly stable in the last years in annuaires due to YLO acquisition of numerous small businesses. It is acquiring small and big businesses at an incredible rate. Just in last quarters, it acquired 3 new businesses. Last big acquisition (canpages) resulted in a big write-down. The company like to buy companies by issuing shares. Share dilution is high. It loves so much to buy others that they created 2 separate sections in their financial statements notes : internal growth and external growth!

Current revenues are way higher than debt payment so YLO should meet its obligations relatively well.

Its history of dividend payment is wonderful. They even switched to fund to use canada’s tax advantages of funds in the last couple of years. They switched back to corporation last year having lost any advantages being a fund. Current dividend is very high. YLO returns 0.0667$ per month to its shareholders for a 0.80 annual dividend. The shares currently are at 6.15 is gives us a return of 13%.

Why?
The question is why is MrMarket giving us this opportunity?

Actually because YLO published in last quarter that dividends would be chopped to 0.65 per share payable monthly starting in Feb 2011! The dividend yields is now closer to 10%. Still good cash back to shareholders.

Another point is that IFRS requirements will result in a one time write-down of about 100m which represents more than the current quarter profits.

This company is also buying back it’s prefered shares trading around book value. Because this company is fairly stable and represents no MOS on balance sheet and is currently in a buying mode, I would look for preferred shares. These would vary a lot less with external purchases and not be diluted. The preferred are issuing quarterly dividends as this:
YLO-A Quarterly cash dividend of $0.26563
YLO-B Quarterly cash dividend of $0.31250
YLO-C Quarterly cash dividend of $0.42188
YLO-D Quarterly cash dividend of $0.43125

They are all trading around 25$ except the B class around 21-22.
YLO-D would return around 7% to shareholder. Not a bad idea, but not so great neither.

Disclosure: None.

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Posted in TSE, YLO

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