TRANSCONTINENTAL INC. $16 (Toronto symbol TCL.A; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 78.0 million; Market cap: $1.2 billion; Price-to-sales ratio: 0.6; Dividend yield: 4.0%; TSINetwork Rating: Average; www. tctranscontinental.com) is Canada’s leading printer of flyers, magazines, newspapers and books. It also publishes magazines and newspapers.
The company recently agreed to sell its consumer magazine division to TVA Group (Toronto symbol TVA.B). This business publishes 15 English- and French-language magazines, including Elle Canada, Canadian Living and The Hockey News. As part of the deal, Transcontinental will keep printing these magazines, as well as other TVA publications, to the end of June 2022.
Selling these magazines will let the company focus on its smaller newspapers and related websites, which serve local advertisers instead of relying on less profitable national ads.
Transcontinental will receive $55.5 million when it completes the sale, probably in the next few months.
Meanwhile, lower ad spending at the company’s printing and publishing businesses cut revenue by 1.3% in its 2014 fiscal year, which ended October 31, 2014, to $2.07 billion from $2.10 billion in 2013. But it earned $168.2 million, or $2.16 a share, up 13.4% from $148.3 million, or $1.90.
The higher earnings are mainly the result of two recent acquisitions. In May 2014, Transcontinental bought U.S.-based Capri Packaging, which makes plastic bags and pouches for cheese and other dairy products, for $146.1 million.
The company also paid Sun Media $78.8 million for 74 weekly newspapers in Quebec. To comply with a competition ruling, it has agreed to sell 14 of its Quebec papers. It’s also closing 20 others, which will leave it with 120 papers in the province.
By merging the Sun papers with its existing operations, Transcontinental expects to save $20 million a year by the end of fiscal 2015. It’s also closing older printing plants. These savings should help offset declining advertising revenue.
Transcontinental’s earnings will probably rise to to $2.21 a share in fiscal 2015. The stock trades at a low 7.2 times that estimate. The $0.64 dividend yields 4.0%.
Transcontinental is a buy.
