TSX Commentary

Yellow Pages (YLO.UN): $5.67 – Clarity on Path to Conversion Finally Puts Focus on Revenue Growth
Outperform, Average Risk, Price Target: $7.00
Yellow Pages reported Q4/09 results on February 11th and provided clarity on the path to conversion. RBC CM expects the stock to trade in the $5-$6 range pending the emergence of a sustainable economic recovery in Canada given peer valuations and lingering investor concerns with the growth outlook for the company. RBC CM believes Q2/10 results will represent a crossroad for the stock reflecting: (i) the provision of 2011 guidance; and (ii) early indications of a cyclical recovery in directories given the lag in the selling cycle. In the meantime, RBC CM believes a stronger fundamental floor is forming under this range due to: (i) a slowly improving sales environment for directories; (ii) better visibility on a cyclical recovery in vertical; and (iii) the reflation of equity value in the NAV following the May 2009 distribution cut and pending January 2011 distribution cut. The trust will convert to a corporation near the end of 2010. The current $0.80 distribution will be maintained through 2010 and commencing January 2011, the dividend will be $0.65 annualized and paid monthly. Based on RBC CM’s current forecast, the $0.65 dividend implies a payout ratio of: (i) 64% of AFFO; (ii) 62% of estimated “cash EPS”; or (iii) 65% of FCF.