JOHN CONDRON is used to feeling unloved. When he ran Yellow Pages for BT he was consigned to premises in a former north London mental hospital and was welcomed to head office only when he had a cheque to deliver.

But the cheques added up. He estimates that BT made more than £4 billion profit from the empire of hulking classified directories that he has made his life’s work.

His marginalisation ended in 2003, when the Ulsterman led the business, now called Yell, onto the stock market in its own right. It soon became a darling, doubling its share price in less than three years. Investors were drawn to the company’s solid business base and the reliable cashflows that helped pay for overseas acquisitions in the US and Spain. Condron sold £20m of stock.

In the last few months, though, Condron could be for given for reaching for one of his directories in search of emergency assistance.

The deteriorating economy and the threat posed by the internet has caused investor confidence to drain away from the industry at a breakneck pace. The City has gone on red alert over Yell, cutting the value of its shares in half in two months flat. Its relegation from the FTSE 100 will be confirmed this week.

“The perception is that the business model is broken,” Condron said. “It is emphatically not.”

Yell warned last month that its larger advertisers were drawing in their horns, prompting a cut in UK growth forecasts from 3% to 2% in the year to March.

The gloom was compounded three weeks later when US rival RH Donnelley warned investors that its income would fall 5% this year, as it scrapped the dividend to reduce debt.

Then, on Friday, UBS slashed its price target from 265p to 150p, fretting that Yell will struggle to pay down its own debt if earnings fall.

The company, whose shares yield 9%, owes £3.7 billion after its acquisition drive, the equivalent of 5.2 times earnings. Condron admits that a need to pay it down means that it is not possible to instigate a share buyback or hike the dividend over and above earnings growth to act as a floor to the shares.

“I haven’t had a single call from the banks,” he said. “I am not losing any sleep over it.”

Jumpy investors fear that due to Google and the like, Condron’s big yellow books, useful as a doorstop, are facing even-tual extinction. The turmoil is made all the more stark because of Yell’s former exalted status.

At its peak of 643½p in February of last year, it had an enterprise value of 13 times underlying earnings. The multiple stands at half that today.

Classified directories have traditionally been regarded as a safer haven in a downturn than broadcasters or advertising agencies. Their mainstay of small customers, including florists and funeral parlours, are seen as less likely to pull what is often their only regular form of marketing. Most don’t even have their own website to promote their wares.

However, the realisation that 20% of Yell’s UK income comes from larger advertisers, whose spending is discretionary, means that the premium has been wiped away – even though it is on track to hit its annual earnings target.

“The market has regarded these companies as defensive in previous slowdowns,” said Rich-ard Gordon at Bear Stearns, the broker. “Now they are looking at them as cyclical.”

Yell has also suffered in competition with Donnelley and another US rival, Idearc – incumbent regional-directories publishers. Yell warned last April that cutthroat competition across the Atlantic meant sales growth would hit 3% this year, not the 8%-10% it had been forecasting.

Even now, Condron is frustrated that his gaining of US market share – now up to 12% – is being overshadowed by recessionary fears.

“A mild round of applause would be helpful,” he said sar-donically. “Our job is to replace the incumbents, not just take a fixed market share.” Rather than clapping, investors are angry. One big shareholder complains that the management is regularly overoptimistic and blasé about Yell’s position and prospects.

He said: “Everyone is allowed to miss a few big changes but to miss competition, structural change and economic cyclicality is an awful lot to have got wrong in a year.”

He stopped short of calling for the head of Condron, who joined the company in 1980 when it was part of the General Post Office and has led it since 1994.

“What is someone else going to do differently in this situa-tion?” he added. “If he gets us through this I will personally suggest him for a knighthood.” In Britain, the biggest worry is over the internet.

The number of searches on Yell.com dipped in December, even though sales are increasing by 49% a year to make up 19% of its British income. Some 200,000 of Yell’s 465,000-strong British advertisers use Yell.com. Of those, only 40,000 choose not to go in the print book.

The company is hitting strife just as Yell has been allowed to increase prices in Britain for the first time in 13 years.

A Competition Commission probe found that the reentry of BT to the classifieds market, plus internet competitors, had the potential to take its toll on Yell, which still commands 78% of all directory income.

A price cap of RPI-6% is being replaced from next month witha formula to let the company raise prices in line with inflation.

Yell has always cut its rates faster than was required, reducing its prices by 27% in the past decade.

Analysts worry it may not be able to push through increases, although Condron reports little resistance so far.

The company was sold by BT in 2001 for £2.1 billion to Apax Capital Partners and Hicks, Muse Tate & Furst. The sell-off began a trend. Most incumbent phone companies have since hived off their classified directories, often into the hands of private-equity firms, which geared them up. Apax and Mac-quarie still have investments in the sector.

Despite the turmoil, Condron, it seems, is going nowhere.

“Am I still up for it? Yes,” he said defiantly.

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