transcontinental

HART STORES INC. $5.35 (Toronto symbol HIS; Aggressive Growth Portfolio, Consumer sector; SI Rating: Speculative) has successfully expanded into Ontario, and now has 10 junior department stores there. Thanks partly to these new stores, profits in its third fiscal quarter ended October 28, 2006 rose 6.7%, to $0.16 a share from $0.15 a year earlier. Sales grew 10.0%, to $45.0 million from $40.9 million. The company should earn $0.55 a share in its current fiscal year, and the stock trades at 9.7 times that estimate. The $0.10 dividend yields 1.9%....

TORSTAR CORP. $18 (Toronto symbol TS.B; Conservative Growth Portfolio, Consumer sector; SI Rating: Above average) earned $0.10 a share in the third quarter of 2006, down 66.7% from $0.30 a year earlier. If you exclude the negative impact of foreign currency movements, restructuring costs and gains from asset sales, earnings were unchanged. Revenue fell 3.1%, to $366.2 million from $378.0 million, mostly due to lower sales at its Harlequin book publishing subsidiary and The Toronto Star flagship newspaper. The stock has dropped 20% in the past six months, due to concerns that the company took on too much debt to buy 20% of Bell Globemedia, which owns The Globe and Mail, CTV Television and several popular specialty channels. But Torstar can use these TV channels to draw traffic to its own web sites. The company could also unlock a big part of its value by spinning off Harlequin to its shareholders as a special dividend....

TRANSCONTINENTAL INC. $19 (Toronto symbol TCL.A; Aggressive Growth Portfolio, Consumer sector; SI Rating: Average) is a major North American commercial printing company with three main divisions: the Information Products division prints books, newspapers and magazines (30% of its revenue); the Marketing Products unit prints advertising materials and provides direct marketing services (45%); and the Media division publishes newspapers and magazines (25%). These businesses are highly cyclical. However, Transcontinental gets over half of its revenue from businesses less exposed to ad spending, such as books and newspaper printing. Also, much of its advertising revenue comes from less cyclical industries like food, health and personal care products.

Acquisitions fueled revenue growth

Transcontinental has expanded its direct marketing operations recently, mainly through the purchase of two U.S.-based direct marketing firms for $255.7 million. These and other acquisitions helped increase Transcontinental’s revenue, from $1.8 billion in 2001 (fiscal years end October 31) to $2.2 billion in 2005....

PETRO-CANADA $48 (Toronto symbol PCA; Conservative Growth Portfolio, Resources sector; SI Rating: Average) is having trouble nailing down overseas gas supplies for its proposed liquefied natural gas (LNG) terminal in Quebec. That’s what probably prompted the company to offer $113 million U.S. for publicly traded junior oil producer Canada Southern Petroleum Ltd. The price is equal to just 25% of Petro-Canada’s first quarter profits before unusual items. Canada Southern’s undeveloped gas reserves in the Canadian Arctic could help make the LNG plant more economically feasible. Canada Southern has rejected the bid, but Petro-Canada can easily afford to improve on its offer....

THOMSON CORP. $41 (Toronto symbol TOC; SI Rating: Above average) provides a wide range of specialized information to financial, medical, legal and scientific professionals, mainly through electronic channels such as the Internet. Unlike Torstar and Transcontinental, Thomson gets only a small portion of its revenue from ads. In the third quarter of 2005, Thomson earned $0.46 a share (total $302 million) from ongoing operations, down 8.0% from $0.50 ($328 million) a year earlier (all amounts except share price in U.S. dollars). If you exclude one-time items, Thomson’s per-share earnings grew 8.5%, to $0.51 from $0.47. Revenue grew 9.1%, to $2.4 billion from $2.2 billion....

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 Internet has disrupted the historic business model of newspaper publishers and other information providers, competing against them for both readers and ad revenue. Thomson was early among media firms to recognize the change and adapt to it. That’s one reason why it was a favourite of ours in the 1990s (though we switched our advice to ‘hold’ several years ago). Torstar and Transcontinental are broadening their Internet activities. All three stocks have an attractive future, but only two are buys. 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....