Transcontinental Case Study

Transcontinental (TCL.A) is a communications company that primarily operates in printing, packaging and media businesses. The company is the largest commercial printer in Canada and the fourth largest in North America. Following its acquisition of Coveris, Transcontinental is among the top ten flexible packaging companies in North America. (RBC Insight)

Watchlist: Tier 1
Price: $16.8
Yield: 5.3%

Sector: Consumer Discretionary
Market Cap: 1.45B
Credit Rating: BBB-
Debt/Cap ratio: 39%

Balance Sheet (Total Assets to Liabilities in millions)
Assets: 3,782.2
Liabilities: 2,148.1

Morningstar monthly pick?: No      Star rating: 4 stars

My take: Transcontinental is in a transitional stage. It recently completed a large acquisition of Coveris, and is in the process of working out kinks. Transcontinental has experienced 6.8% earnings growth over the past 20 years and increased dividends on average 13.5% in that time, without any cuts. The current challenge for management is a learning curve in an unfamiliar industry. It remains to be seen whether management can tap-in to a lucrative packaging market by generating profits and growth to justify the acquisition.

Socratic Disclaimer: For all this, I truly know nothing. Every investment decision I make is based on the best available data at the time. Investing is speculative by nature. Sometimes I will take greater risks and make decisions that you, the reader, vehemently disagrees with. This is the nature of my investment philosophy; play it safe, mostly. At the end of the day, no one knows how companies, the market, or life in general will play out. Countless companies have gone from boom to bust for various reasons: Enron, GE, Blackberry, Maxar… the list goes on. I am not here to tell you what to do with your money. I am here to share my experience and learning with you in hopes that you become a more knowledgeable and inspired investor. Best of luck.

This is my pride and joy – a table made to help visualize a summary of FAST Graph data that I will collect for each company I research. This is not an exhaustive list of metrics, but some of the most useful to me. The 7/16/ALL criteria at the top includes two years of future estimated earnings, so it is actually 5/15/ALL of historical data. The information above is based on the graphs below. We may disagree on the interpretation of data, so please: do your homework!

Earnings have increased over the past 20 years at 6.8%
Dividends have increased 13.5% on average.
Based on today’s price, TCL.A has an annual ROR of 5.1%.

Analysts estimate some growth in 2020.
Again, I’m holding long term.

Assets per share have been increasing.
Cash is tied up in the Coveris acquisition.
Book value per share has been increasing.

The company took on debt in the acquisition.
However, this is necessary for future growth.

Management has a strong record of invested capital.
Only time will tell if this pans out.

Book value has been increasing since 2013.

Profit margins are a mixed bag. Gross P has declined since 2010, but increased slightly since 2012.
Net P has slightly increased over time.

ROE, ROI, ROA has declined since 2014, and is slightly above historical averages.

The company has a decent liquidity ratio.

Current levels present an attractive price to book value.

Operating and free cash flow per share cover dividends paid per share. However, this does not rule out the possibility of a dividend reduction in the future should the acquisition fail to materialize growth; money might be better spent paying down the debt. Given a strong history of dividend growth and increasing cash flow, this is a risk / reward scenario I’m willing to accept.

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