transcontinental

TIM HORTONS INC. $30 has finished shifting its incorporation to Canada from the U.S. This will let the coffee-and-donut store operator take advantage of Canada’s lower corporate tax rates. Corporate tax rates in the U.S. are over 30%, while Canada’s combined federal and provincial rate will be around 25% in two years. Shareholders will continue to own the same number of shares and have the same interest in the company that they have now. As well, Tim Hortons’ shares will continue to trade on both Toronto and New York under the “THI” symbol. Best Buy. THE WESTAIM CORP. $0.35 continues to seek new business opportunities. Its main asset is its 74.7% stake in Nucryst Pharmaceuticals Corp. (Toronto symbol NCS), which has developed a silver-based substance that prevents infections in burns and other wounds. Westaim is still debt free, and holds cash of $40.2 million, or $0.43 a share. The company also has roughly $3.7 million of illiquid notes that it received last January as part of the restructuring of the asset-backed commercial paper market. Hold. TRANSCONTINENTAL INC. $12 has sold $100 million of preferred shares. Underwriters have an option to buy an additional $15 million worth. The cash will help the company pay down its $768.7-million long-term debt, which is a high 81% of its market cap. Buy.

ENCANA CORP., $63.52, Toronto symbol ECA, rose 7% on Friday after the company announced that it will split itself into two separate companies. One will keep the EnCana name, and will focus on unconventional natural gas. The other will operate as Cenovus Energy Inc., and will specialize in oil-sands projects, oil refineries and conventional natural gas. The new EnCana will account for about two-thirds of the company’s current production and reserves. Cenovus will account for the remaining third. EnCana had hoped to complete the split in early 2009, but the stock-market decline and tight credit markets would have made it difficult for the two new, smaller companies to raise capital to fund new projects. Now that conditions have improved, EnCana has decided to go ahead with the split....

CANADIAN PACIFIC RAILWAY LTD., $47.90, Toronto symbol CP, reported higher profits for its latest quarter, as a gain on the sale of an investment helped it overcome a 24% drop in freight volumes caused by the recession. In the three months ended June 30, 2009, CP’s earnings rose 1.7%, to $157.3 million from $154.7 million a year earlier. Earnings per share fell 7.0%, to $0.93 from $1.00, on more outstanding shares. (In February, CP sold 13.9 million shares at $36.75 each. That increased the total outstanding by about 9%). The latest earnings included a $68.7-million gain on CP’s sale of part of its stake in the Detroit River Tunnel Partnership, which operates a rail tunnel between Detroit and Windsor, Ontario. CP now owns 16.5% of this business, down from 50%. The sale freed up cash that CP used to pay down debt, while preserving its right to keep operating the tunnel. CP’s $4-billion long-term debt is now a manageable 49% of its $8.2 billion market cap....

MDS INC., $6.10, Toronto symbol MDS, continues to lose $4 million a month because of the shutdown of the 52-year-old Chalk River reactor near Ottawa (all amounts except share price in U.S. dollars). To put this in context, MDS lost $17 million, or $0.15 a share, in the three months ended April 30, 2009. The loss included a $16-million writedown of buildings and equipment at MDS’s drug-testing division. Last May, a water leak prompted Atomic Energy of Canada Ltd., which operates the reactor, to shut it down. MDS gets all of its medical isotopes from Chalk River. Medical labs use these isotopes to detect and treat cancer and other diseases. Chalk River will probably remain out of service for the rest of this year. In response, the company is working to find new supplies of isotopes from reactors in Europe and South Africa, which have increased production to fill the gap left by the closure of Chalk River. MDS is also negotiating with a Russian isotope supplier. However, this deal could take several months to finalize....

The recession is driving down advertising revenue for many newspaper publishers and information providers. As well, more people are turning to the Internet as their main source of information. We feel these three information providers will overcome the current downturn. As market leaders, their well-known brands and strong reputations will continue to attract customers and advertisers. As well, all three are aggressively cutting their costs. THOMSON REUTERS CORP. $32 (Toronto symbol TRI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 828.6 million; Market cap: $26.5 billion; Price-to-sales ratio: 2.0; SI Rating: Above Average) divides its operations into two divisions: Markets accounts for 60% of the company’s revenue and sells financial-information products to banks and other financial institutions. Professional (40% of revenue) sells specialized information to professionals in the legal, accounting, scientific and health-care fields. Thomson Reuters gets about 60% of its revenue from the Americas, followed by Europe (30%) and Asia (10%)....

TRANSCONTINENTAL INC. $8.17 (Toronto symbol TCL.A; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 80.8 million; Market cap: $660.1 million; Price-to-sales ratio: 0.3; SI Rating: Average) gets 50% of its revenue, and 40% of its profits, from its direct-marketing business. Through this division, Transcontinental designs direct mail and other advertising campaigns. It also analyzes customer-purchasing data. These services help its clients increase their sales and build customer loyalty. The company also has a commercial-printing business (25% of revenue, 30% of profits), and publishes newspapers and magazines (25% of revenue, 30% of profits). The recession continues to drive down demand for Transcontinental’s direct-marketing services, particularly in the U.S., where direct-marketing revenue is down 50% from a year ago. In response, the company recently closed a direct-mail plant in Pennsylvania. It has also merged some printing plants and scaled back on newspaper and magazine publishing. These moves should save Transcontinental $100 million a year. It expects to realize $75 million of these savings in its current fiscal year, which ends October 31. The company was also forced to write down $169.3 million of goodwill related to acquisitions, mostly at its commercial-printing division. Transcontinental has experienced a drop in volumes as customers print fewer newspapers, books, magazines and advertising flyers during the recession. This was a non-cash charge, and had no impact on Transcontinental’s cash flow or cash balances....

MDS INC., $5.72, Toronto symbol MDS, is a life-sciences company that conducts contract-drug research for pharmaceutical companies, sells analytical devices (which scientists use to detect diseases) and supplies medical isotopes for cancer research. The company lost $17 million, or $0.15 a share, in the three months ended April 30, 2009 (all amounts except share price in U.S. dollars). The loss included a $16-million writedown of buildings and equipment at its drug-testing division. In the year-earlier quarter, MDS earned $13 million, or $0.11 a share. If you disregard the writedown and several other unusual charges, earnings per share fell 62.5%, to $0.03 from $0.08. That was well below the $0.06 a share that analysts were expecting. Revenue fell 19.4%, to $282 million from $350 million. Still, this was higher than the consensus estimate of $274.4 million. If you exclude the impact of foreign-exchange rates and the businesses that MDS bought and sold, its revenue fell 10%....

AGRIUM INC., $46.00, Toronto symbol AGU, may now mail its $67.75 cash-and-stock offer to buy U.S.-based fertilizer producer CF Industries Holdings Inc. (New York symbol CF), directly to CF’s shareholders, now that CF’s management has rejected it (all amounts except share price in U.S. dollars). CF’s stock is now trading at $68.61, which indicates that investors anticipate a higher bid. Agrium’s offer for CF is worth roughly $3.3 billion (56% of the offer is stock and 44% is cash). This is a big acquisition for Agrium, which earned $1.3 billion, or $8.34 a share, in 2008 However, CF has a shareholder-rights plan that lets shareholders buy new shares at half the market price if an investor tries to buy more than 15% of the outstanding shares without the approval of CF’s directors. This makes hostile takeovers like Agrium’s less likely to succeed....

ENCANA CORP., $48.27, Toronto symbol ECA, has agreed to sell the gas from its Deep Panuke offshore development near Nova Scotia to Repsol YPF SA, a Spanish oil-and-gas firm. The Deep Panuke project, worth $550-million (all amounts except share price in U.S. dollars), should begin operating in 2010, and its reserves could last up to 18 years. Locking Repsol in as a buyer helps cut EnCana’s risk. Meanwhile, EnCana earned $4.4 billion before unusual items in 2008, up 7.4% from $4.1 billion the previous year. Earnings per share rose 9.3%, to $5.86 from $5.36 on fewer shares outstanding. Cash flow per share rose 12.8%, to $12.48 from $11.06. A 6% rise in production, plus much higher oil and natural-gas prices in the first half of 2008 were behind the gains. Through hedging contracts, EnCana has locked in prices for two-thirds of its natural gas production for the first ten months of 2009. The average price of $9.13 per thousand cubic feet that EnCana gets under these deals is 125.4% more than the current spot price of $4.05. Natural gas accounts for over 80% of EnCana’s total production....

TRANSCONTINENTAL INC. $8.50 (Toronto symbol TCL.A; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 80.8 million; Market cap: $686.8 million; Price-to-sales ratio: 0.3; SI Rating: Average) now trades at just 5.1 times its forward earnings estimate of $1.66 a share. That’s mainly because advertisers are shifting away from traditional direct mail services to the Internet. Direct marketing accounts for 50% of Transcontinental’s revenue, and 40% of its profit. Transcontinental is also a major commercial printer (25% of revenue, 30% of profit). Many of its major customers, such as newspaper publishers, are now stagnating as the slowing economy hurts their circulation sales and advertising revenues. The slowdown is also putting pressure on Transcontinental’s own publishing operations, which consists of 42 magazines and 172 newspapers, primarily in eastern Canada (25% of revenue, 30% of profit)....