TRANSCONTINENTAL INC. $11(Toronto symbol TCL.A; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 81.0 million; Market cap: $891.0 million; Price-to-sales ratio: 0.5; Dividend yield: 5.3%; TSINetwork Rating: Average; www.tctranscontinental.com) is the largest commercial printer in Canada, and the fourthbiggest in North America. It also publishes newspapers and magazines.
Transcontinental continues to invest heavily in its online division. The company now has over 1,000 websites, which supply 10% of its revenue. Their contribution will continue to rise over the next few years as advertisers spend more on the Internet than on printed publications.
The company recently swapped its printing plants in Mexico for six facilities in Canada. This deal should ultimately add $230 million to Transcontinental’s yearly revenue.
Without the contributions from the Mexican plants and other unusual items, the company earned $27.1 million, or $0.33 a share, in its fiscal 2012 first quarter, which ended January 31, 2012. That’s down 5.9% from $28.8 million, or $0.36 a share, a year earlier.
Revenue fell 3.7%, to $495.9 million from $514.8 million a year earlier. Revenue from the printing division (which supplies 73% of the total) fell 5.3%, mainly because the company finished a major contract to print forms for the Canadian census. The media division’s revenue (27% of the total) fell 0.4% as weaker revenue from national advertisers offset contributions from recently purchased companies.
Revenue and earnings should rebound in the next year, particularly as it starts work on new contracts to print ads for major Canadian retailers.
The company gets about 60% of its printing revenue from contracts that run from three to 18 years. As well, clients with less cyclical businesses, such as supermarkets and drug stores, account for 40% of its revenue. Both of these factors give the company stability.
The stock trades at just 5.9 times the $1.97 a share that Transcontinental will likely earn in fiscal 2012. The $0.58 dividend yields 5.3%.
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