Torstar Corp. $22 – Toronto symbol TS.NV.B

TORSTAR CORP. $22 (Toronto symbol TS.NV.B, SI Rating: Above average) publishes The Toronto Star, Canada’s largest daily newspaper. It also publishes daily and weekly papers throughout Ontario, and operates news and information Internet sites. Torstar also owns Harlequin Enterprises, the world’s largest publisher of romance fiction titles. Newspapers provide two-thirds of Torstar’s revenue, and about 55% of its profit.

In the three months ended September 30, 2005, Torstar earned $0.30 a share (total $23.7 million), more than double the $0.14 a share ($11.3 million) it made a year earlier. The most recent quarter included a $0.10 a share gain on the sale of excess land in Toronto, and $0.11 in other non-recurring gains. Revenue grew 3.8%, to $380.6 million from $366.5 million, as gains from its community newspapers and Harlequin book publishing division offset lower revenue at its daily newspapers.

The company aims to cut its reliance on newspaper ads by expanding elsewhere. It has agreed to buy 20% of Bell Globemedia, the owner of The Globe and Mail, CTV Television and several other media properties, for $283 million. It recently paid $3 million U.S. for an undisclosed minority stake in U.S.-based LiveDeal.com, which provides free online classified ads.

Torstar is also expanding into non-traditional information businesses and ad mediums, such as bus and subway electronic message boards.

Torstar’s stock now trades at 15.3 times its likely 2005 earnings of the $1.44 a share. That’s cheap in light of its strong brands and market position. The potential for Torstar to unlock some of its value by spinning off Harlequin also adds to its appeal.

Torstar should also gain from Ottawa’s plan to cut dividend taxes. Its $0.74 dividend yields 3.4%.

Torstar is a buy.

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