Yellow Pages (TSX: Y) is up around 25% today as I write this on their quarterly report showing that things aren’t as bad for them as expected.
Although year-over-year revenues are still declining sequentially (17% for Q2), cash generation continues to be extremely high. As-in, eye-popping high. Of $88.3 million in revenues earned for the quarter, this translated into $31.7 million in operating cash flow. For the half-year, these numbers are $176.6 million in revenues and $58.8 million in operating cash flow. Subtracting $4.2 million in capex and lease payments, this leaves $54.6 million in free cash flow for the half year.
They also gave out $2.9 million in dividends in the quarter (the first dividends in nearly a decade).
Needless to say, especially after Covid-19, this cash generation blew my expectations away by a mile. I have never seen anything like this before in a business, where cost controls in such a significant revenue decline situation still produces an amazing amount of cash.
On the downside, it is not entirely clear the impact of the CEWS program on margins; and the customer count continues to decline (32k lost from the previous year).
Yellow ended June 30, 2020 with $97.7 million in cash in the bank (my expectations were about $7 million less). Their only debt (aside from lease obligations) is $107 million in 8% debentures which will most certainly be redeemed on May 31, 2021. At this point, this debenture is almost as good as a 9-month GIC, earning 8% if you can get it at par.
Management also indicated that the cash balance on August 5, 2020 was $109.7 million in cash. This implies that in the 5 weeks since the end of the quarter, they generated another $12 million in cash (implying a $125 million cash generation run rate, or about $4.46/share). Note this could be misleading due to the timing of payments. However, if they can stabilize cash generation at even half of this level, the stock is vastly undervalued even at the current trading price of $10/share. This has always been the big “if” for the company. Management has alluded to some revenue initiatives coming ahead.
Yellow continues to remain one of my larger positions. I did some diversification during the COVID crisis, but the remaining amount is still significant.
I still believe the likely scenario for the company is going private. It is 75% owned by three major institutions, and this fraction goes up if they execute on their NCIB and suck up more shares from an already relatively illiquid public float.
Mailman delivered the Yellow Pages today!
I hear those books make for great campfire starter.