TRANSCONTINENTAL INC. (Toronto symbol TCL.A; www.tctranscontinental.com) is Canada’s leading printer of flyers, magazines, newspapers and books. This business accounts for 67% of its revenue and 85% of its earnings. The remaining 33% of revenue and 15% of earnings comes from publishing 35 magazines and 175 daily and weekly newspapers.
Advertisers continue to shift to the Internet. That’s why Transcontinental’s revenue fell from $2.2 billion in 2009 to $2.0 billion in 2011 (fiscal years end October 31). In 2012, the company traded its Mexican printing plants for six Canadian facilities. The new plants brought its revenue up to $2.1 billion in both 2012 and 2013.
Transcontinental’s earnings rose 17.0%, from $1.65 a share (or a total of $133.5 million) in 2009 to $1.93 a share (or $155.9 million) in 2010. They then fell to $1.85 a share (or $149.4 million) in 2011. However, earnings rebounded to $2.02 a share (or $157.2 million) in 2013, as the company began saving $40 million annually from merging the six new plants with its existing operations.
Meanwhile, recent printing press upgrades have helped Transcontinental win new clients, including The Globe and Mail and San Francisco Chronicle daily newspapers. More than 60% of the company’s revenue now comes from printing contracts up to 18 years long.
The company cuts its media operations’ cyclical risk by focusing on newspapers in smaller communities with little competition. It is also expanding its online business: Transcontinental now owns or sells ads on over 3,500 websites.
Canadian stocks: Transcontinental enters deal with Sun Media to take over 74 Quebec community newspapers
Transcontinental is taking advantage of the slow economy to add to its media properties. It recently agreed to pay $75 million for 74 community newspapers in Quebec, along with their websites. The seller is Sun Media, a subsidiary of Quebecor (Toronto symbol QBR.B).
As part of the deal, the company will also print some of Quebecor’s magazines and direct marketing materials. Transcontinental expects the new operations to add $20 million a year to its gross operating income. Competition regulators must approve the deal, but the company expects to complete it in mid-2014.
Recently signed printing contracts should add over $40 million a year to Transcontinental’s revenue, starting in fiscal 2014. The company’s $0.58 dividend yields 4.1%.
In the latest edition of The Successful Investor, we look at Transcontinental’s prospects in the wake of its new acquisition and printing contracts and whether it can keep its dividend high. We conclude with our clear buy-sell-hold advice on the stock.
(Note: If you are a current subscriber to The Successful Investor, please click here to view Pat’s recommendation in the latest issue. Be sure to log in first.)
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Thus far Transcontinental has continued to prosper in a time of transition as electronic media gains ground on print media. Do you have examples of other stocks that have done a good job of remaking themselves under the pressure of advancing technology? Or stocks that failed the same challenge miserably?
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