TRANSCONTINENTAL INC. $13 (Toronto symbol TCL.A; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 81.0 million; Market cap: $1.1 billion; Price-to-sales ratio: 0.5; Dividend yield: 4.2%; TSINetwork Rating: Average; www.tctranscontinental.com) is the largest commercial printer in Canada and the fourth-largest in North America. It also publishes newspapers and magazines.
Transcontinental also has over 1,000 websites, which supply 16% of its total revenue. These websites will become more important to its growth in the next few years as advertisers spend more on the Internet than print products.
The company recently swapped its printing plants in Mexico for six facilities in Canada. If you exclude the contribution from the Mexican plants and other unusual items, such as goodwill writedowns, Transcontinental earned $161.7 million, or $2.00 a share, in its 2011 fiscal year (which ended October 31, 2011). That’s up 3.7% from $155.9 million, or $1.93 a share, in fiscal 2010. Sales rose 0.8%, to $2.04 billion from $2.03 billion.
The company continues to benefit from several new printing contracts. For example, it recently expanded its contract to print The Globe and Mail newspaper. This will add $25 million to its yearly sales. And starting in January 2012, it will begin printing advertising flyers for Canadian Tire under a new four-year deal. That will add a further $30 million to $40 million to its annual sales.
The company’s total debt of $564.4 million is a high 51% of its market cap. However, it has lowered its debt from $730.7 million a year earlier.
The stock trades at just 6.4 times the $2.02 a share that Transcontinental should earn in 2012. That low p/e ratio mainly reflects investor concern that a slowing economy will hurt the company’s advertising revenue.
However, 40% of Transcontinental’s revenue comes from its less-cyclical clients, such as supermarket chains. That cuts its risk.
The company has raised its dividend twice in the past year. The current annual rate of $0.54 a share yields 4.2%.
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