TORSTAR CORP. $8.97 – Toronto symbol TS.B

TORSTAR CORP. $8.97 (Toronto symbol TS.B; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 79.5 million; Market cap: $713.1 million; Price-to-sales ratio: 0.5; Dividend yield: 5.6%; TSINetwork Rating: Above Average; www.torstar.com) publishes The Toronto Star, which is Canada’s largest daily newspaper by circulation. The company also publishes three other daily newspapers and over 100 weeklies, mainly in southern Ontario. Torstar’s newspaper business accounts for about 70% of its revenue and 60% of its earnings.

The company’s other main business is wholly owned Harlequin Enterprises Ltd., the world’s leading publisher of romance novels.

Torstar recently received $291.6 million from the sale of its 20% stake in CTVglobemedia to BCE Inc. (Toronto symbol BCE). CTVglobemedia owns CTV Television and other broadcasting businesses.

Torstar used most of this cash to pay off its long-term debt. It still has $137.3 million of loans due within one year. That’s equal to 19% of its market cap. However, it will likely take advantage of today’s low interest rates and convert some of these loans to long-term debt.

Thanks to its lower debt levels, Torstar’s interest costs fell 69.3% in the three months ended June 30, 2011, to $2.0 million from $6.6 million a year earlier. That helped push up its earnings by 25.7%, to $38.2 million, or $0.47 a share (excluding the gain on the CTVglobemedia sale). It earned $30.4 million, or $0.39 a share, a year earlier. The company’s revenue rose 4.2%, to $393.3 million from $377.6 million.

Earnings were flat at Torstar’s media operations, because savings from last year’s restructuring offset slow advertising sales at its newspapers.

Harlequin’s earnings fell 21.4%. However, that’s because this subsidiary is now selling more electronic books than printed books. As a result, retailers are returning more unsold printed books to Harlequin.

Torstar will probably earn $1.65 a share in 2011. The stock trades at just 5.4 times that figure.

Torstar is a buy.