is wafting across the Square Mile on Tuesday.
From Data Explorers, we present the short interest in Yell.
And the recent price action in the heavily indebted directories group.
Today’s advance seems to have been caused by Cazenove, which gave this warning to the short sellers.
Although Yell has bounced c75% over the last month we believe the share price could still see further upside on a successful refinancing of the balance sheet and confirmation that trading conditions are gradually improving.
Cazenove envisages Yell (current market value £470m) raising between £625m-£750m in an equity issue, which would bring net debt to EBITDA down to 4.4 to 4.6 times EBITDA.
Now, that might sound high to you and me, but apparently it is nothing to worry about.
Yep, Yell can really service that amount of debt in spite of the challenges facing the director business, according to Caz.
In our view the main concern for investors post the refinancing is that the group’s leverage will remain at relatively high levels (4.4x – 4.6x EBITDA in our two scenarios). Importantly we do, however, still expect the company to generate between £600m and £650m in annual cash flow pre interest over the coming three years.
We therefore believe the group will still be able to support a relatively high level of leverage, even if the current market conditions persist for some time. On our current forecasts, we expect Yell to de-lever by 0.2 -0.3x EBITDA per year implying that the group will be near the mid point of the 3-4x target range by the next re-financing in 2014. As we expect the cyclical pressures to gradually ease as the cycle turns, we would overall expect investors to be more comfortable with this level of leverage going forward.
Related link:
Yell faces reality – FT Alphaville
Yell tries to move mountain of debt – FT