Deutsche Bank - Equity Research

Here's the latest research report from Deutsche Bank on the Yellow Pages industry. BellSouth finally reversed their revenue trend and reported a quarter with positive growth, but their gross margins slipped a tad. Their margins are still phenomenal, so I wouldn't sweat it.

BellSouth teamed up with SBC late last year to buy the domain name YellowPages.com for a cool $97.5 million. It will be at least a year before you see any revenue impact, but it shows a commitment on a long term strategy to build their online properties.

There is so much life left in the print properties that I believe it will be another 5 years before online sales make up a meaningful component of their revenue.


R.H. Donnelley {Ticker: RHD, Closing Price: USD 58.80, Target Price:
USD 61, Recommendation: BUY}.

BELLSOUTH REPORTS YELLOW PAGES REVENUE GROWTH OF 1.1%

BellSouth reported 4Q yellow pages revenue growth of 1.1%, the
company's first positive growth rate in at least five quarters, and
a steady acceleration over that same period. Additionally,
management stated that they expect "modest revenue growth" in 2005,
after declining 1.5% in 2004. The main negative in the yellow pages
divisional result was the EBITDA margin which contracted 70bp to
46.6% from 47.3%.

FIRST LOOK AT 4Q RESULTS FOR THE YELLOW PAGES INDUSTRY

BellSouth was the first major publisher to report 4Q results. The
other two RBOC publishers report later this week, while the U.S.
publicly-traded publishers don't report results until late February
or early March. Although the pure plays have already issued 2005
guidance, BellSouth's positive revenue result gives us greater
confidence that the internet is not having a material impact on
incumbent print revenue.

Below is a partial schedule of the release dates for the major
publishers:

1/26 - SBC
1/27 - Verizon
2/14 - Yellow Pages Group (Canada)
2/15 - Yell Group PLC (Yellow Book)

MARKET CONTINUES TO UNDERVALUE THE STABLE FCF

Excluding the NPV of the tax shield, RHD trades at only 7.9x 2005E
EV/EBITDA, a 20% discount to the newspaper sector yet converting
much more EBITDA to cash. Our analysis shows the discount should
only be around 15%, providing upside to around $67. Our DCF value
suggests a share price of $61. Risks to our Buy are increased
independent competition, reduced print usage, and rapidly rising
interest rates.

For more information, please click on the attached document.

Regards,
Paul Ginocchio, CFA
Deutsche Bank Equity Research
(212) 250-8463 - paul.ginocchio@db.com