Transcontinental Inc. (TSX: TCL.A) is a Canadian printer and flexible packaging provider that operates in three segments: packaging, printing, and others. Its packaging segment features the production of different plastic products geared toward consumer goods.

Key Updates:

• Stable dividend payment: The company has a strong history of consistent dividend payment, backed by stable cash flows. Notably, in FY21, the company reported a total dividend payment of CAD 78.3 million, as compared to CAD 77.9 million in pcp. Moreover, the TCL. A stock is carrying a dividend yield of ~4.516% on an annualized basis, which looks impressive considering the ongoing interest rates.

• Higher liquidity: The company commands higher short-term liquidity and reported quick ratio and a current ratio of 1.11x and 1.63x, respectively, in Q4FY21, which is higher than the industry median of 1x and 1.57x, respectively. The above indicates that the company is well managing its short-term liabilities with its current assets.

• Impressive outlook: For FY22, the management expects organic volume growth driven by new contracts signing coupled with the introduction of new products. Within the printing sector, the company expects a revival in the printing volume, supported by the growth in its in-store marketing activities and other growth activities.

Q4FY21 Financial Highlights:

• A announced its quarterly result, wherein the company posted revenues of CAD 775.8 million, stood higher than CAD 655.7 million in pcp. The growth was supported volume in the Packaging Sector, organic growth and the recent acquisition of BGI Retail Inc. in the Printing Segment.
• The quarter witnessed higher operating expenses coupled with an inclusion of impairment of assets. Operating earnings before depreciation and amortization came at CAD 80.5 million, as compared to CAD 81.2 million in pcp.
• Net earnings stood at CAD 39.2 million, as compared to CAD 51.3 million in pcp.

Q4FY21 Income Statement Highlights (Source: Company Report)

Risks:

The company might witness margin pressure due to the increase in input costs like raw materials, labor etc. 

Valuation Methodology (Illustrative): Price to Cash flow-based

Stock Recommendations:

The stock of TCL.A closed above is 20-days and 50-days simple moving average, which indicates a bullish technical pattern and illustrates fresh price appreciation in the coming trading sessions. We have valued the stock using the Price to CF based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like BCE Inc, Quebecor Inc etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of TCL.A at the last traded price of CAD 19.93 on December 09, 2021.

One-Year Technical Price Chart (as on December 09, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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