June 27, 2011 / 3:13 PM / 6 years ago

UPDATE 2-Yellow Media hits life-time low; transition painful

* Analysts highlight debt risk, rocky digital transition

* Huge volumes traded on Toronto Stock Exchange

* Stock has fallen steadily for years, sheds 24 percent

(Updates throughout)

TORONTO, June 27 (Reuters) - Shares of Yellow Media Inc YLO.TO fell as much as 24 percent to a lifetime low in heavy volumes on Monday as the telephone directory publisher struggles to switch from print to digital while managing its debt burden.

Analysts at two investment banks slashed their price targets for the maker of the Yellow Pages directory, saying they expect falling earnings and tighter margins as businesses abandon print advertising.

Credit Suisse cut its price target to $2 from $5 and downgraded the stock to “underperform” from “neutral”. RBC Capital Markets cut its target to C$3.75 from C$5.

While Yellow Media has a viable online business that still has room to grow, the number of ads in its printed directories are falling faster than ever before, Credit Suisse analyst Colin Moore wrote in a note to clients.

“The pace of print declines appears to be accelerating and as such we believe financials during the transition period will become increasingly unpredictable,” Moore said.

Yellow Media has said it will soon sell advertisements and charge for priority placement on its mobile platform, where Credit Suisse notes stiff competition from wireless carriers, payment processors and social media sites.

Around three-quarters of Yellow’s revenue comes from selling advertising in its Yellow Pages and related business directories, with the rest coming from online services.

Yellow Media said in March it will sell its automotive classifieds assets for C$745 million in cash to try to trim debt. [ID:nL3E7EP1V6]

“We believe investors want to see a ‘de-risking’ of the story with respect to debt repayment and levels of free cash flow available after dividends,” RBC analyst Drew McReynolds said in a note to clients.

McReynolds has a “sector perform” rating on the stock and said investors could reconsider buying at between C$2.25 and C$2.75.

Yellow Media shares were worth around $14 in late 2007 but have since been declining steadily. Monday’s drop brought them as low as C$2.26 and they were last at C$2.38, with more than 22 million shares traded by mid-afternoon.

Both analysts suggested the company may consider cutting its dividend, as it would otherwise spend most of its free cash flow to fund payouts and a dividend reinvestment plan. (Reporting by Alastair Sharp in Toronto and Abhiram Nandakumar in Bangalore; editing by Janet Guttsman)

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