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MARKET COMMENT
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There are not many companies that can claim to be truly recession-proof. However, Yell (LSE: YELL), the publisher of the Yellow Pages in the UK, believes it is just that. This morning's first-quarter results from the company appear to bear this out. Yell reported a 6% rise in revenues to £262m, while profit before interest, tax, depreciation, amortisation and the one-off charge for its recent flotation rose 13% to £80m. The cost of the flotation was a hefty £77m, which hurt the company's bottom line. This resulted in Yell posting a net loss of £56m compared to a loss of £33m last time. Based on this morning's results, Yell looks on course to achieving its full-year turnover target of £1.2b. Demand for its printed directories business remains strong both in the UK and also in the US. Additionally, the company is planning to tweak its Yellow Pages in London and, through that fine-tuning, create ten new books out of five previous titles! A profit of £195m has been pencilled in for this year, which puts the 315p shares on a P/E of 12. Moreover, profits are expected to grow at 8% with average revenue growth of 5% to 6% annually for the next three years. On that basis, the shares do not look that expensive at all. A full-year dividend of 8.9p per share has been pencilled in for this year, and the prospective yield of 2.8%, although lower than the market average, is not too bad either. However investors should bear in mind that flotations, and all that money raised through the offering of new shares, do not always lead to immediate success. A recent study by the accountants Ernst & Young shows that a large proportion of companies have in fact posted a dip in profits following their flotations. Profit, it would seem, has played second fiddle to revenue growth as these newly listed companies attempt expand their businesses. Whether Yell will fall into the trap of sacrificing profit for revenue growth is debatable, and it could certainly be a risk. However, Yell, does not need to do anything too rash to grow its business. It is, after all, the dominant player in the UK and also the biggest independent provider of classified directory advertising in the US. More: Shell Out For Yell