Earnings update puts pressure on Yell's share price

Jul 1 2009 by Iain Laing, The Journal

YELLOW Pages firm Yell has warned that next quarter earnings were likely to be 30% lower as it continues to feel the pain of the economic slump.

The update came as Yell said talks were under way to “comprehensively refinance” the group, which is saddled with £3.5bn of debt.

Yell warned in its annual report that uncertain trading conditions meant it might need to reset financial covenants with its lenders. The report also set out ways in which Yell could breach its bank terms, including a fall of more than 9% in underlying earnings for the 12 months to June 2010.

At constant exchange rates, earnings for the quarter to June 30 will be 20% lower, reducing to 10% when including the impact of the weaker pound.

In the company’s second quarter, starting tomorrow, earnings will be down 30% on last year. The group, which also trades as Yell.com in the UK, racked up the debt following acquisitions in Spain and the United States.

The trading update and news of refinancing talks put pressure on Yell’s shares, which fell another 11% to 27.5p having been 300p 18 months ago.

Numis Securities said it would not be a surprise if the company opted to raise money from shareholders alongside its refinancing. It said any new debt facility in the absence of steadier trading would be on “very onerous terms” and result in much higher interest charges.

Retaining its sell recommendation, Numis added: “We remain of the view that Yell’s balance sheet poses serious risk to equity shareholders and the risks to the group’s investment case are disproportionately to the downside.”