transcontinental

Fears of a slowing economy and falling advertising revenue have hurt all three of these information providers in the past few months. However, investments in new printing presses and other modern equipment will help keep their costs down. They should also gain from their expanding Internet businesses and lower computing costs. TORSTAR CORP. $17 (Toronto symbol TS.B; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 78.7 million; Market cap: $1.3 billion; SI Rating: Above average) publishes The Toronto Star, Canada’s largest daily newspaper. It also publishes other daily and community newspapers in Southern Ontario. Newspapers supply 70% of Torstar’s profit and revenue. The remaining 30% comes from wholly owned subsidiary Harlequin Enterprises Ltd., which is the world’s largest publisher of romance novels....

BCE INC. $37.24, Toronto symbol BCE, gained 7% this week after a Quebec court dismissed a class-action lawsuit launched by the company’s bondholders. The ruling improves the chances that the $42.75-a-share takeover by a group led by the Ontario Teachers’ Pension Plan will succeed. The stock is now trading at roughly 13% below the offer, partly because the deal still requires regulatory approval. In addition, the problems in the credit markets could also make it harder for the consortium to issue the bonds it needs to finance the takeover. If the deal falls through, BCE’s stock could fall to its pre-takeover level of around $30. However, the company’s operations still generate plenty of cash flow, and it could unlock value by spinning off some of its operations....

HOME CAPITAL GROUP INC. $39.51, Toronto symbol HCG, earned $2.59 a share in 2007, up 32.8% from $1.95 in 2006. Revenue grew 30.6%, to $368.9 million from $282.5 million. The company’s loan portfolio rose 21.5%, mainly due to strong demand for residential and commercial mortgages. Home Capital has no exposure to the U.S. mortgage market. Receivables on its Equityline Visa credit cards rose 40.2% in 2007. The strong results let Home Capital increase its dividend for the eighth time in the past five years. The new annual rate of $0.48 a share, up 9.1% from $0.44, yields 1.2%. Home Capital Group is a buy....

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) has paid an undisclosed sum for L’Autre Voix, a community newspaper that serves 13,500 households in the Côte-de-Beaupré region of Quebec. It has also acquired the Italian-language weekly newspaper Corriere Italiano, which serves the Italian community in the Montreal area. Transcontinental now operates 172 community newspapers across Canada. The stock has moved down lately, as the high Canadian dollar hurts profits from its operations in the United States and Mexico. As well, slowing consumer spending and Internet competition could also hurt advertising revenue. However, small newspapers such as these are less vulnerable to competition from the Internet than larger newspapers. Transcontinental is a buy....

TRANSCONTINENTAL INC. $18 (Toronto symbol TCL.A; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 84.5 million; Market cap; $1.5 billion; SI Rating: Average) will restate its earnings to correct two accounting errors. It originally reported earnings for the year ended October 31, 2006 of $134.3 million or $1.54 a share, excluding restructuring costs. These restatements will cut Transcontinental’s 2006 earnings by $10 million, and by a further $10 million in prior years. The restatements grow out of the size and timing of estimated expenses like inter-company transactions and depreciation. They do not involve cash outlays like employees’ salaries, so they will have no effect on Transcontinental’s cash flow or cash balances. Transcontinental’s stock has moved down from $21 in November, 2007, mainly due to concerns that an economic slowdown would hurt advertising revenue at its newspapers and flyer-printing businesses. The company’s U.S. and Mexican operations supply 30% of its revenue, so it’s also vulnerable to a rising Canadian dollar. However, recent investments in new plants and printing equipment will help bring Transcontinental’s operating costs down....

TRANSCONTINENTAL INC. $21 (Toronto symbol TCL.A; Aggressive Growth Portfolio, Consumer sector; 84.5 million; Market cap: $1.8 billion; SI Rating: Average) is the largest commercial printer in Canada, and the sixth-largest in North America. It’s also a leading publisher of community newspapers and magazines, and provides direct marketing services. In August 2007, Transcontinental agreed to pay $103.3 million for PLM Group Ltd., Canada’s fourth-largest commercial printer. PLM’s four facilities near Toronto specialize in direct marketing catalogs and flyers. Demand for direct marketing services like PLM’s is growing strongly, particularly as new “Do Not Call” rules could make it harder to contact potential customers through telemarketing....

We feel most investors should hold the bulk of their investment portfolios in securities from wellestablished companies. However, you may also want to hold some aggressive stocks. Most of our aggressive recommendations have a strong hold on niche markets. This approach cuts your risk by zeroing in on companies like these five, whose strong long-term prospects will help them overcome the inevitable downturns. However, we see only four of them as buys at this time. ARBOR MEMORIAL SERVICES INC. $30 (Toronto symbol ABO.A; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 10.6 million; Market cap: $318.0 million; SI Rating: Average) owns 41 cemeteries, 27 crematoria, three reception centres located on cemetery premises and 93 funeral homes in eight provinces....

AGRIUM INC. $46 (Toronto symbol AGU; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 134.0 million; Market cap: $6.2 billion; SI Rating: Average) owns half of a nitrogen facility in Argentina that has had to suspend operations lately due to natural gas shortages. This plant accounts for less than 10% of Agrium’s revenue, so the shutdown’s effect will be small. But costlier natural gas could hurt its profit this year. Agrium is a hold. TRANSCONTINENTAL INC. $21 (Toronto symbol TCL.A; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 85.4 million; Market cap: $1.8 billion; SI Rating: Average) has paid an undisclosed sum for The Oxbow Herald, a weekly newspaper in southeast Saskatchewan. It now publishes nine newspapers in Saskatchewan, reaching 65,000 households in 140 communities....

TRANSCONTINENTAL INC. $22 (Toronto symbol TCL.A; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 85.8 million; Market cap: $1.9 billion; SI Rating: Average) is the largest commercial printing firm in Canada, and the sixth largest in North America. The company gets about half of its revenue from its marketing division, which prints catalogues, flyers and other advertising materials. Transcontinental also helps its advertisers develop strategies, and analyze customer data for trends. Other types of printing, such as newspapers, books and magazines, accounts for 30% of its revenue. The remaining 20% of revenue comes from its media division. Transcontinental publishes over 150 local and weekly newspapers in Atlantic Canada, Quebec, Ontario and Saskatchewan, as well as over 40 consumer interest magazines, including Canadian Living and The Hockey News....

The printing and newspaper publishing industry has fallen out of favour with investors in the past few years, as advertisers move to the Internet and away from traditional printed ads. But Transcontinental has cut its reliance on traditional printing/publishing with faster-growing operations, such as direct marketing. Recent investments in new plants and presses also cut its long-term operating costs. Much of Transcontinental’s growth in the past few years is due to acquisitions. In fact, goodwill is now a high 1.2 times equity. But the company has done a good job integrating these new assets, so the risk of a writedown is modest....