Poor second quarter results in the midst of continued weak future prospects, prompted Genuity Capital analyst Carl Bayard to lower his target price on Transcontinental Inc. (TCLAF.PK) from C$19 to C$17.50.
Transcontinental reported checkered numbers, hitting its earnings per share forecast at C$0.43, in spite of losing C$19.3-million in revenue to foreign exchange fluctuations, and missing sharply Mr. Bayard's revenue forecast of C$623-million, at C$595-million. The company also posted an EBITDA of C$90.7-million compared with the analyst's forecast of C$97.9-million.
Mr. Bayard noted that organic growth in EBITDA came from the retail and book groups due to volume increases and efficiency gains from the company's manufacturing platform. Conversely, lower margins in the direct marketing group as well as an unfavorable product mix in the catalogue and magazine groups affected profitability.
With the ongoing U.S. credit crunch continuing to affect its direct marketing operations and sustained pressure from the Canadian dollar, we end up with projected single-digit EPS growth for the company over the next two years.
In spite of a rather drab industry outlook, Mr. Bayard also noted that Transcontinental shares were currently competitively priced.
While reiterating a "hold" on the stock, he told clients that:
Transcontinental's shares are hardly expensive at 10.2x our fiscal 2009 estimated EPS of C$1.73.