Yellow Media Inc. logo is shown at the company’s quarterly results meeting in Montreal, Thursday, May 6, 2010. (Graham Hughes/THE CANADIAN PRESS)
Inside the Market’s roundup of some of today’s key analyst actions. This file will be updated with more analyst commentary throughout the trading day.
Yellow Media Inc. has been fighting for its life over the last couple of years, but the company’s recapitalization and aggressive push into digital media have at least one analyst recommending the stock to investors again.
Canaccord Genuity’s Aravinda Galappatthige upgraded Yellow Media to a “buy” rating today (Canaccord had been restricted from covering the stock during its recapitalization), giving the embattled yellow pages publisher a vote of confidence in its future.
“As Yellow Media emerges from its recapitalization, we see a dramatically improved balance sheet and meaningful strides in the transition to digital,” Mr. Galappatthige said in a research note.
Just over a year ago, Yellow Media was saddled with net debt at 3 times its earnings before interest, taxes, depreciation and amortization based on its trailing 12 months of financial results. Now, that figure is down to 1.4 times.
The company’s focus on digital is showing some progress. Online now make up 38 per cent of revenues, compared with 26 per cent a year ago.
Nevertheless, further declines in EBITDA and fiscal cash flow can be expected in coming years, especially in 2013, as the company continues to transform to a digital media business, Mr. Galappatthige said.
“We expect that print declines, at least in the near term, will remain elevated (i.e., around the 20-25 per cent range) and the revenue drag will result in fairly steep EBITDA declines over the next three years. However, over time, once the digital investments are made, the cost structure should adjust itself to preserve margins,” he said.
He thinks the stock is going for an attractive sale price right now based on his cash flow valuations.
“The stock currently trades at 2x EV/EBITDA 2013E (2.2x 2014E) and 1.2x P/FCF 2013 (1.7x 2014E). This compares with 3.5-4.5x for Canadian print media names (Transcontinental, Torstar, etc.),” he said.
Target: Mr. Galappatthige set a $13.50 price target.