Yell Group saw more than a quarter wiped off its value yesterday after the market was spooked by its plans to halve its dividend to help insure against worsening economic conditions.
Although the debt-laden Yellow Pages publisher's revenue rose by 6.9 per cent to £2.22bn and adjusted profits were up 6.4 per cent to £294m, it forecast flat underlying profits for the coming year as cautious small businesses rein in on advertising spending.
John Condron, the chief executive, was keen to stress that the dividend cut does not signal financial distress. "We are still in strong financial shape and are re-enforcing the financial flexibility of the company by reducing the dividend," he said. "We are an inherently cash-generative business and we expect to remain within the guidelines of our bank facilities."
But Yell's stock, which has already dropped by more than 50 per cent in the last 12 months, fell by another 26.3 per cent to close at 154p as investors baulked at the firm's considerable debts. There is no immediate concern. The company generated £600m of free cash flow last year. Even at the current level of £3.8bn, the group's debt is only at around five times its earnings of £739m.
But investors looking further ahead to 2010 and 2011 have more cause for concern, according to one City analyst. "Cutting the dividend signals that there is some form of financial limitation, and since it is an economically sensitive business, performance is likely to suffer even if revenue trends are still reasonably resilient," the analyst said. "The problem the company has is that its current banking facility expires in 2011: the combination of the credit crunch and the likelihood that business will deteriorate will make it hard to get good terms, which could reduce performance and even threaten the banking covenant."
Yell's main area of growth is in the internet business. Yell.com in the UK grew 45 per cent in the past 12 months, compared with a 5.8 per cent decline in print, and now accounts for a fifth of the overall business. In the US, online growth is even sharper, with last year's revenue from Yellowbook.com up 68 per cent.Reuse content