When Yell Group admitted yesterday that fourth-quarter revenues would fall short of forecasts, it was hardly talking telephone numbers: an £8 million miss for a company expected to generate £2.2 billion of sales in the 12 months to March 31.

So the £400 million wiped from its stockmarket value by a 15 per cent slide in its shares might be considered a severe over-reaction - especially given that cost savings in the UK means that margins will be higher, with the net effect that current-year profit estimates remain unchanged.

But investors appeared less concerned by fundamentals yesterday than by the signals that the directory publisher's revision of estimates appeared to give out.

For a start, the problem - of its larger customers cutting their advertising spend in the printed Yellow Pages - lies not in the US, the source of last April's shock profits warning, but in the UK, Yell's traditional stronghold, which accounts for 40 per cent of sales.

Then there is the speed with which Yell's markets appear to be changing. Only two months ago - at its annual investor day in December - the company gave a bullish outlook. So the deterioration in UK trading conditions in the first five weeks of the year - a straightforward case of the credit crunch inducing caution among corporate clients - would appear to raise the possibility of the same phenomenon taking hold in Spain and the US, which so far are performing to plan. That reversal also did little to enhance management credibility. Finally, with the company's overseas acquisition spree leaving it with forecast net debt of £3.6 billion - which equates to 5 times forecast operating profits - Yell is the most heavily-geared constituent within the media sector.

Yell's strong cash flow means that debt burden is steadily falling, but the company's status as a cyclical play on consumer spending makes that conjunction especially unpopular in the current environment - all the more so given persistent concerns that Yell's business is steadily migrating to Internet rivals.

On that front, yesterday's numbers show Yell's online businesses continuing to grow strongly: up 50 per cent in the UK to account for 18 per cent of the total, and 70 per cent higher in the US. There are other positives. UK regulatory changes, which come into effect on April 1, have given Yell a degree of freedom in its pricing: the company has no need to refinance its debt in the next few years, and the shares offer a prospective dividend yield of 6.7 per cent. But the danger that, in a fast-moving market, it will be profits rather than revenues that are downgraded next time round, the shares, at 279p, or seven times 2008 earnings, are best avoided.

Rolls-Royce

Careful stewardship of cash or gratuitous hoarding? The stock market inclined towards the latter view on learning that Rolls-Royce is returning just £40million to shareholders this year through increased dividend payments rather than a hoped-for one-off payout of £500 million. The shares fell 10 per cent in response.

However, Roll-Royce's reasoning is sound. First, a higher dividend, followed by rising payments thereafter, will provide the same benefits, albeit over a longer period. Secondly, tighter credit markets - its financial review was launched more than a year ago - mean it now makes sense to conserve cash rather than gear up. Thirdly, there is a strong chance that within the next 18months, Boeing and Airbus will unveil programmes to replace the 737 and the A320, the narrow-bodied jets that are the workhorses of the sky. Given fierce competition from GE, it is only wise that Rolls should retain flexibility to ramp up R&D spending - roughly £800 million a year - if required.

The more worrying implication is that, despite Rolls's upbeat outlook, the prospects for civil aerospace have begun to worsen. Rolls may have a £46billion order book, but tougher times for airlines bring the risk that they may defer or cancel orders. Rolls's ability to generate strong after-market sales from spare parts gives it considerable defensiveness if new-build work declines.

However, by keeping its cash, Rolls - which at 431p is at 13 times 2008 earnings - gives a pertinent, perhaps unintended, reminder that it remains a fundamentally cyclical business. Sell.

Ladbrokes

The acquisition of 54 shops from Eastwood Bookmakers is minor in the context of the 2,200 outlets that Ladbrokes already runs in the UK. However, as a sign of strategic intent, the purchase of Northern Ireland’s biggest bookie for £117.5 million is an important pointer to the group’s determination to up the ante on its rather pedestrian rate of growth of the past couple of years.

Ladbrokes, like its peers, has found the going tough since the levelling off of the effect of the introduction of lucrative fixed-odds betting terminals across its estate. The huge boost from the scrapping of betting tax in 2001 is also but a distant memory.

The Government’s U-turn on gambling deregulation has forced Ladbrokes to abandon a planned push into casinos. And the abolition of internet gambling in America has also ruled out a potentially lucrative expansion route.

Instead, investors must now content themselves with a more measured pace of growth. Although Ladbrokes has made great strides internationally, the profit contribution will take time to come through. So, despite Ladbrokes’s traditional defensiveness in a downturn and its near 6 per cent dividend yield, the negative of a £1 billion debt burden and an unexciting 2008 earnings multiple of 12 instil caution at 289½p. Avoid.

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