Transcontinental Inc. $15 - Toronto symbol TCL.A

TRANSCONTINENTAL INC. $15 (Toronto symbol TCL.A; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 83.7 million; Market cap: $1.3 billion; SI Rating: Average) is a leading provider of direct marketing services, such as direct mail and client database management. This business supplies 45% of its revenue. It also offers commercial printing services (30% of revenue), and publishes over 180 newspapers and 35 magazines (25% of revenue). The United States accounts for 25% of its revenue. Transcontinental continues to spend heavily upgrading its printing plants, including $80 million in two plants in Montreal. This will give customers more flexibility over colour and printing materials, as well as cut Transcontinental’s operating costs. These investments are also helping Transcontinental win more outsourcing contracts from publishers. It already has long-term deals to print The Globe and Mail and The New York Times. For example, it recently won a six-year contract from Rogers Communications worth $210 million. Rogers publishes over 70 magazines, including Chatelaine, Maclean’s, L’actualité, and Canadian Business. To put this contract in context, Transcontinental earned $127.2 million or $1.50 a share before one-time items in the fiscal year ended October 31, 2007, on revenue of $2.3 billion. The company is taking advantage of the high Canadian dollar to expand in the United States. Transcontinental’s new $228 million printing plant in San Francisco will begin printing the San Francisco Chronicle in 2009 under a 15-year contract potentially worth $2 billion U.S. Transcontinental is also expanding its Internet businesses as advertisers shift from print to web-based ads. The strong content produced by its print publications helped Transcontinental’s web sites increase their unique monthly visitors by 29% and pages viewed by 46% in 2007. The company will probably earn $1.39 a share in fiscal 2008, which gives the stock a p/e of just 10.8. The $0.28 dividend yields 1.9%. Transcontinental is a buy.