Transcontinental Inc. $19 – Toronto symbol TCL.SV.A

TRANSCONTINENTAL INC. $19 (Toronto symbol TCL.SV.A; SI Rating: Average) is the seventh-largest commercial printing firm in North America. It also publishes newspapers and magazines, distributes flyers and other advertising materials, and operates several Internet sites.

In the past few years, two-thirds of Transcontinental’s growth has come from its aggressive acquisition strategy. But under a new long-term plan, Transcontinental will probably make fewer acquisitions, and build up its existing operations.

For example, Transcontinental plans to offer its printing customers more advisory services and special ad packages, in its publications and online. It hopes to make their ads effective, cut their costs, and generate added revenue.

The company is also investing heavily in new facilities and equipment. In fiscal 2005 (fiscal years end October 31), it spent $1.30 a share on equipment upgrades. It plans to spend about the same in 2006.

These costs will cut Transcontinental’s per-share earnings from around $1.63 in fiscal 2005 to $1.55 in 2006. The stock now trades at just 12.3 times the 2006 estimate. The $0.22 dividend yields 1.2%.

The higher Canadian dollar also hurts Transcontinental’s growth, since revenue from U.S. operations (15% of the total) translates into fewer Canadian dollars. But savings from new equipment should help offset the negative currency impact.

The stock is a buy for aggressive investors.

Comments are closed.