Yellow Pages Income Fund (YLWPF.PK) is betting large that its upcoming Web site redesign will send its revenues through the roof, but Scotia Capital says the venerable directory service will rely on how many Canadians use it on their smartphones -- and its print directory remains a crutch.
"[Yellow Pages] is continuing to adapt to the changing market with a variety of new products," Scotia analyst Paul Steep said. "In our minds the key question regarding the value of the units remains ... directory revenues (particularly print) from the current recession."
Mr. Streep praised Yellow Pages' new mobile applications, introduced in April, 2009, citing the increasing popularity of smartphones. The platform is "critical" to the firm's future, with more than 117,000 downloads since the launch and some 27,000 mobile searches daily across 3,000 merchant page views.
The new Yellowpages.ca will also be key, as Yellow Pages hopes to attract users to improved merchant pages featuring video, profile info and maps.
Meanwhile, Yellow Pages acknowledged to Scotia that its primary competition in the print directory field has narrowed to CanPages.
"We continue to see the significant economic slowdown in Ontario and Western Canada as the primary challenge to YPG's business, particularly its print directories," Mr. Steep said. He noted that Yellow Pages was assuming a cyclical recovery in the directories business by 2011, with a 60%-70% dividend payout ratio as the goal.
This perspective is much more bullish than Scotia and consensus estimates, he said.
Overall, Scotia views capital appreciation as "limited" in the near term, and maintains a Sector Perform rating with a one-year target of C$6 per share.