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Yellow Pages has left TSX returns in the dust. Analysts say it's still a buy

Yellow Pages said digital revenues increased 10.5 per cent to $129.2-million in the quarter ended Dec. 31.


Yellow Pages Ltd.'s goal of transforming its business from the iconic phone book to online tools that search out restaurants and real estate appears to be working. The company reported double-digit digital revenue growth in the fourth quarter, which has sent the stock up 14 per cent in the past two trading sessions since the results were released.

Shares of the Montreal-based company have been volatile over the past year, but outperformed the S&P/TSX composite index by 23 per cent as of Friday.

Yellow Pages said digital revenues increased 10.5 per cent to $129.2-million in the quarter ended Dec. 31 and the division – which includes such brands as, and – now represents 62 per cent of revenues, up from 54 per cent a year earlier.

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A 19-per-cent drop in print revenues – which is mostly its telephone directory – is seen as an improvement from much steeper slides of more than 20 per cent in past quarters.

Over all, fourth-quarter revenues fell 3.2 per cent to $208.5-million, which was in line with consensus among analysts.

The results show "what investors had been waiting years to see – stability in operations," Beacon Securities analyst Vahan Ajamian said in a note.

In an interview, Mr. Ajamian said he believes now is the "optimal time," for investors to buy the stock, two years into its "return to growth" plan adopted when chief executive officer Julien Billot took over in January, 2014.

"You are seeing really good signs of progress, not just a plan on paper, yet there is still upside as they continue to execute," said Mr. Ajamian, who initiated coverage of the stock earlier this month with a "buy" and $24 target.

All four analysts that cover the stock have a "buy" rasting, with an average target price of $25.25. That's 47 per cent above its Friday close at $17.16.

The shares last traded above $25 in February, 2014, and have bounced between $14 and $20 over the past year. "Yellow remains very much a 'show me' story in the eyes of investors, and therein lies the opportunity," RBC Dominion Securities analyst Haran Posner said in a note. He has a $25 target on the stock.

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Canaccord Genuity analyst Aravinda Galappatthige increased his target to $30 from $28 last week, saying in a note that the company's target earnings before interest, taxes, depreciation and amortization margin of 30 per cent "has held in well thus far" and is "sustainable."

The 19.4-per-cent year-over-year drop in print revenues was less than the 21-per-cent dive that Mr. Galappatthige forecasted and "a slight improvement from recent trends."

He said the increase in digital to nearly two-thirds of revenues is "creditable progress considering that other Canadian print-media businesses are mostly seeing declines or flat digital revenues."

Analysts say risks for the company include a larger drop in print sales, as well as the potential for digital revenue growth to stall or reverse given the increasingly competitive market.

Yellow Pages is forecasting revenue from its existing businesses to grow in the "high single digits" in 2016.

In an interview, Mr. Billot said the company doesn't "feel forced to do acquisitions" to underpin future growth, but may do some "tactical tuck-ins."

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"The return-to-growth plan was mainly an organic plan," Mr. Billot said.

"There is no big M&A strategy for YP [Yellow Pages] in the coming years."

The company's last deal was in 2015 when it bought the ComFree/DuProprio Network, a digital real estate marketplace.

While the company's balance sheet is improving and it's paying down debt, Mr. Billot said a dividend is not on the radar. The company cancelled its dividend in 2011, under former CEO Marc Tellier, at the same time it announced a $2.9-billion goodwill impairment charge and restructuring of its debt.

Paul Gardner, a partner and portfolio manager at Avenue Investment Management, was part of a bond group that restructured the company in 2012 and continues to own its convertible debentures.

"They seem to be going finally in the right direction," Mr. Gardner says. "We were told to trust it, two years ago. … They are incrementally moving the goal posts."

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About the Author

Brenda Bouw is a freelance writer and editor based in Vancouver. She has more than 20 years of experience as a business reporter, including at The Globe and Mail, The Canadian Press, the Financial Post and was executive producer at BNN (formerly ROBTv). Brenda was also part of the Globe and Mail reporting team that won the 2010 National Newspaper Award for business journalism. More


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