Transcontinental Inc. 2

On my other blog I am today writing about Peter Rose's new art show...continue...

I do not own this stock of Transcontinental Inc. (TSX-TCL.A), OTC-TCLAF). This used to be a dividend growth stock. It probably is still considered one on the dividend growth lists as it is still on a number of dividend lists. However, it has fallen on hard times. Although the company is trying to do more modern things, it is still in the print media business.

When I look at the insider trading report, I see $1.8M of insider selling and no insider buying. The company Class A shares that are Subordinate Voting Shares and Class B shares that are multiple voting shares. Remi Marcoux owns 88% of the class B shares and his shares are worth around $178.6M. Not only do insiders have options, but also 3 other types of options like vehicles. In 2013 outstanding shares increased by 121,000 with a book value of $1.5M.

The 5 year low, median and high median Price/Earnings per Share Ratios are 4.60, 6.42 and 7.88. These are very low P/E Ratios. These ratios have been low for the last 5 years. The current P/E Ratio is 7.01. On a relative basis the price is still reasonable, but higher than a median price.

However, there are problems in using the P/E Ratios on this stock. For starters, this is based on their "adjusted net income". The company started using an adjusted net income in 2005. At first the adjusted EPS just excluded unusual items. The definition has grown to exclude other things like the cost of restructuring. You got to wonder how valid this is. The market does not seem much impressed as is reflected in a very low P/E Ratio.

I get a current Graham Price of $20.10. The 10 year low, median and high median Price/Graham Price Ratios are 0.87, 0.96 and 1.13. The current P/GP Ratio is 0.68. This would appear to be a low ratio and therefore suggests the stock is cheap.

However, since this calculation includes the estimated EPS for 2014 of $1.95, I just wonder how good this test is also. This is because analysts often buy into such things as adjusted EPS you have to wonder about the estimates for this year. For the last two years of actual earnings losses, the EPS estimates appeared to be for the adjusted EPS not any actual EPS.

The 10 year Price/Book Value per Share 1.32 and the current P/B Ratio is 1.49 a values some 12% higher. So this stock test shows that the stock is on the pricey side as the current ratio is 12% higher than the median. However, it is not that much higher, so the stock price, although a bit high is still in a reasonable range.

The 5 year median dividend yield is 3.62% and the current dividend yield at 4.24% is higher by around 17%. This stock test shows that the stock is approaching cheap.

If you look at other stock tests such as the Price/Sales Ratios, the 10 year P/S Ratio 0.53 and the current one is lower the 6% at 0.50. This stock test says that the stock price is reasonable. The current P/S Ratio is based on a stock price of $13.67 and 2014 Revenue estimate of $2121M.

If you look at the 10 year median Price/Cash Flow per Share Ratio, it is 4.84. The current P/CF Ratio is 20% lower at 3.86. This stock test says that the stock price is cheap. The current P/CF Ratio is based on a stock price of $13.67 and 2014 CFPS estimate of $3.54.

When I look at analysts' recommendations I find Buy, Hold, Underperform and Sell recommendations. The consensus recommendation would be a Hold. The 12 month consensus stock price is $15.00. This implies a total return of 14.01% with 4.28% from dividends and 9.73% from capital gains.

An article in CBC News talks about Transcontinental buying Sun Media's community papers. On TSI Network, Pat McKeough writes a favorable review of this stock. There was also a favorable report at Forbes on this stock.

After all my stock price testing, it would seem that the stock price is reasonable to cheap. However, I still think that people are taking a big risk in buying this stock and your reward would not compensate you for that risk. We still do not know all the effects that the internet via computers, smart phones and pads are going to have on print media. So far it has not been good. See my spreadsheet at tcl.htm.

This is the second of two parts. The first part was posted on Tuesday, January 28, 2014 and is available here.

Transcontinental, one of Canada's top media groups, is the largest printer in Canada and Mexico and the fourth-largest in North America. In addition to commercial printing, it operates 150 websites and is a leading publisher of consumer magazines, French-language educational resources and community newspapers in Quebec and the Atlantic provinces. Its web site is here Transcontinental Inc.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.