TRANSCONTINENTAL INC. $12 (Toronto symbol TCL.A; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 81.0 million; Market cap: $972.0 million; Price-to-sales ratio: 0.5; Dividend yield: 4.5%; TSINetwork Rating: Average; www.transcontinental.com) is the largest commercial printer in Canada, and the fourth-largest in North America. Its printing operations provide two-thirds of its revenue.
The remaining third comes from publishing over 170 newspapers and magazines. The publishing division also has over 1,000 web sites, which will become more important to Transcontinental’s growth in the next few years as advertisers spend more on the Internet than print products.
In the quarter ended July 31, 2011, the company’s revenue rose 2.3%, to $492.6 million from $481.3 million a year earlier. It has won a number of new printing contracts, including an expanded deal to print The Globe and Mail.
Transcontinental recently swapped its printing operations in Mexico for six printing plants in Canada. Excluding the Mexican plants’ contribution and other unusual items, the company would have earned $32.8 million, or $0.40 a share, down 1.8% from $33.4 million, or $0.41 a share, a year earlier. The decline was due to the strong Canadian dollar, which hurt the contribution from the company’s international operations.
Transcontinental’s long-term debt of $642.2 million is a high 66% of its market cap. However, its debt is down 9.9% from $712.9 million on October 31, 2010. The company also holds cash of $60.8 million, or $0.75 a share.
The stock trades at just 6.4 times the $1.88 a share that Transcontinental should earn in fiscal 2011. That low p/e ratio mainly reflects investor concern that the slowing economy will hurt the company’s advertising revenue.
However, Transcontinental gets 40% of its revenue from less-cyclical clients, such as supermarket chains. As well, it gets more than half of its printing revenue from customers whose contracts range from one to 18 years.
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