Wednesday, September 15, 2010

Global yellow pages Singapore

3 years ago, yellow pages was what what many would call a potential target for private equity firms. After all, private equity firms have been scooping up old, matured businesses such as yellow pages. Usually old, matured stable businesses like Global Yellow pages no longer appeal to the investors. Besides it being a matured business and non-exciting one, i see it as a business that produces very stable cashflows.It has low capital expeditures and it also has a certain competitive advantage in that it is one of a few advertising mediums for business listings in Singapore and it is a trusted brand at what it does. The problem essentially is compared to other public listed firms, it is a "no to slow growth" type of a business. However, its business is non cyclical which is the reason why many would say that is has got potential for a private equity buyout.

While the previous argument may hold that it is definitely one to look at in terms of a private equity buyout, 3 years ago, there was 97.8 million of net debt on their balance sheet.While debt on their balance sheet does not deter private equity firms from looking at it, this time round, they have managed to clear their debt such that they have virtually zero net debt position. Looking at its balance sheet now, it makes even more sense for private equity firms to buy it out for private equity firms often like to leverage up their positions with debt and place it on the balance sheets of their target company.

So while previously, Global Yellow pages had little debt capacity i might argue, currently it has a debt capacity of approximately 65 million on their balance sheet. That means that the company has no problems puting 65 million in debt on their balance sheet considering that i calculated that free cashflow as 16.4 million, the lowest of its 4 year range, if it can pay an interest of 3.28 million comfortably, this company should be able to raise debt of approximately 65 million and put it on its balance sheet.

If one were to look at its approximate free cashflow of 16.4 million and put an undemanding 10 mulitple to it, the business is worth 164 million while its market capitalisation is 99.8 million.

Another way is to look at it and say, maybe this company can pay 5 million in dividends a year. If we value this stream as a perpetuity at 4%, then that 5 million per year is valued at 125 million.

Either way, coupled with its debt capacity and the fact that is can pay dividends annually to make you sit and wait, i think that it is a good proposition for an investor to think of it as undervalued and to buy it with the view that it might be a takeover target. If it eventually isn't a takeover target, at least one is sitting on a company that can appraise in value over time.

Best regards,