Newsletter Archive - Dollars & Sense
Deutsche Bank
04/09/2004 - Paul Ginocchio actively monitors the Yellow Pages industry for Deutsche Bank Equity Research. While Deutsche Bank does acknowledge that within the past year they or their affiliates have managed/co-managed a public offering for R. H. Donnelley, the comments in Paul's monthly newsletters provide an interesting insight as to what leading money managers monitor in our industry.
Two major topics dominant financial market thinking: results and valuations. Results for the Yellow Pages industry are based mostly on those company's that report their numbers publicly. Valuations comments illustrate a continuing theme from Yellow Page company's that their businesses are still undervalued by the market.
Following are several excerpts from Paul's recent issues.
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Revenue vs. Other publishers
RHD reported the best 1Q net revenue result (+0.2% YoY) among the incumbent yellow pages publishers that reported to date. The next best performer was SBC at -0.8%, followed by Verizon at -2.2% and BellSouth at -3.2%. The RBOCs cited the continuing effects of a slow economy in 2003 and increased competition as reasons for their negative quarterly comparisons. Dex Media doesn't report 1Q results until 14 May 2004.
As a window into the national sales picture, we like to look at the Monster's Directional Marketing Division), which is a national yellow pages sales organization and CMR (ED: better know as TMP). Today this division reported a 15.8% YoY decline in revenues. As this division also includes Monstermoving.com, an online resource for people who are moving, we are cautious about making any direct observations about the trends in national advertising from its results. For example, in 4Q03, the division's revenues declined 2.0%, due mostly to lower demand for advertising at Monstermoving. Monster indicated that yellow pages were essentially flat.
Another directory play that has reported 1Q results (ending February 1st) is Volt Information Sciences (NYSE: VOL). Revenues for Volt's Telephone Directory increased 16.8% YoY to $14.6 million, due in part to an increase in directories published during the quarter compared to the same period last year. In its 9 March press release, Volt stated the "...ads sales backlog has improved and should provide increased sales over the next three quarters...".
Valuations
...RHD currently trades at 13.7x P/FCF, versus TV at about 19X, newspapers at 20x, and radio at 28x. While a discount is justified due to the expected lower long-term growth, at our price target RHD would only trade at 15.6x P/FCF, still a 23% discount to the newspaper sector versus a 33% discount today...
Paul Ginocchio
Deutsche Bank
paul.ginocchio@db.com
www.db.com