There’s not much ambiguity in Genuity Capital Markets analyst Carl Bayard’s assessment of Transcontinental Inc.’s (TCLAF.PK) C$1.7-billion printing deal inked with the Globe and Mail last week.
In a note headlined “TCL’s Globe and Mail contract extension is a bad deal – SELL” Mr. Bayard said that the capital spending of $200-million associated with the deal will “depress near-term free cash flow at Transcontinental in a material manner.”
The hit to what Mr. Bayard calls the company’s “vaunted free cash flow profile” leaves the company trading at high valuations to its expected cash flow in 2009 and 2010, he said.
He cites rapidly rising ink prices as another reason he is changing his rating on the company to SELL from HOLD previously. Mr. Bayard also drops his 12-month target price on the company to C$13.25 from C$17.00.