Investors seem unconcerned by the Competition Commission's inquiry into Yell's dominance of the UK printed directories market. Although its shares were sold off sharply when the referral was announced in April, they have since recovered these losses and gained nearly 20 per cent.
The key question facing the commission is whether online directories and search engines are part of Yell's market and, if not, the extent to which they will provide a constraint on the market for printed classified directories in the future. As it stands, Yell, along with Thomson Local, controls about 90 per cent of the UK market.
However, the group insists it is facing increasing competition and is urging the authorities not to take action. It says not only is it up against a plethora of online alternatives, but also that heavy hitters such as Trinity Mirror and BT Group have recently entered the market.
Meanwhile, the prices its Yellow Pages directory charges advertisers continue to fall. Such trends are bound to endear Yell to the authorities and make a radical shake-up of the market unlikely. As for results, most analysts are expecting the commission to recommend the extension of the existing price controls which are faced by Yell.
Yesterday's third-quarter results highlighted just how well the company is doing in the US. Last year's £800m purchase of the directories business, TransWestern, not only diversified it away from the UK but also gave the company exposure to a fast-growing market.
In the first three quarters of its financial year, Yell registered an impressive 51 per cent jump in sales. It is now the biggest independent directories player across the Atlantic and is competing successfully against the services offered by telecom giants such as AT&T and Verizon.
The growth Yell is enjoying in the US is unlikely to dry up any time soon and, according to Merrill Lynch forecasts, should help it deliver a 22 per cent rise in earnings this year and a further 15 per cent increase next year.
This potential makes the rating of Yell stock, 13 times forward earnings, look conservative. But given the uncertainly surrounding the company from the Competition Commission investigation, it is appropriate for now. Hold.
Quantica looks cheap at this level
Despite delivering a 30 per cent rise in annual profits yesterday, Quantica remains one of the cheapest stocks in the recruitment sector. Its results easily beat City forecasts. Adjusted pre-tax profits rose to £3.6m compared with expectations of £3.3m and up from the £2.4m delivered this time last year.
Like all recruitment players Quantica makes its money by getting paid a fee for helping organisations fill job vacancies. Last year it significantly strengthened its professional services division, which supports law firms, accountants and IT companies, following the £12m purchase of the privately owned RK Group. The acquisition was quickly bedded down and is already exceeding management expectations in terms of the boost it has been able to give to the earnings of the enlarged group.
Quantica also operates in the healthcare sector, where the company recruits workers for care homes and social workers for local authorities. Here it has enjoyed strong organic growth from the very beginning. The division was started from scratch in 1999 and is now a £15m turnover business.
The third string to Quantica's bow is its training unit. A market leader in the London area, it provides vocational training for people between the ages of 16 and 25. Les Lawson, group chief executive and chairman, yesterday assured investors that Quantica is enjoying strong trading across the board and talked of a good start to the new year.
However, its shares trade at just 9.4 times forecast earnings for 2006. This is cheap given the company is tipped to deliver earnings growth of 12 per cent this year and given that the average listed recruitment firm trades at 13.7 times forward earnings. Buy.Reuse content