TRANSCONTINENTAL INC. $18 (Toronto symbol TCL.A; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 78.1 million; Market cap: $1.4 billion; Price-to-sales ratio: 0.8; Dividend yield: 3.8%; TSINetwork Rating: Average; www.tctranscontinental.com) is Canada’s leading printer of flyers, magazines, newspapers and books. It also publishes magazines and newspapers.
In its 2015 first quarter, which ended January 31, 2015, the company earned $36.1 million, up 36.7% from $26.4 million a year earlier. Earnings per share gained 35.3%, to $0.46 from $0.34, on more shares outstanding.
The gains mainly came from two recent acquisitions: in May 2014, Transcontinental bought U.S.- based Capri Packaging, a maker of plastic bags and pouches for cheese and other dairy products, for $146.1 million. And in June 2014, it paid Sun Media $78.8 million for 74 weekly newspapers in Quebec.
To comply with a competition ruling, Transcontinental agreed to sell 14 of its Quebec papers. It’s also closing 20 others, which will leave it with 120 papers in the province.
As well, the company agreed to sell 15 of its magazines to TVA Group (Toronto symbol TVA.B) for $55.5 million. It expects to complete this sale in the next few weeks.
These asset sales, along with weaker advertising revenue, offset contributions from Transcontinental’s new operations. That’s why its revenue rose just 1.1% in the latest quarter, to $504.6 million from $499.3 million.
Transcontinental has won new printing contracts, and it’s realizing savings as it merges overlapping operations. These strengths should offset lower advertising revenue, particularly in the wake of Target’s decision to close its 133 Canadian stores.
The stock has gained 11% in the past year. It trades at just 7.8 times the $2.30 a share that Transcontinental will probably earn in fiscal 2015. The company also raised its quarterly dividend by 6.3%, to $0.17 a share from $0.16. The new annual rate of $0.68 yields 3.8%.
Transcontinental is a buy.
