Torstar took quite a beating last year. The media company's stock sank to $17.66 in October its lowest price in five years as management struggled to keep costs down, in part through slashing jobs at both its newspaper division and romance publisher Harlequin Enterprises. The amount of ad space purchased in the Toronto Star continued its decline (down 7.2%); the company's Transit Television Network continued to lose money ($9 million); and the Weekly Scoop, Torstar's celebrity gossip rag, packed it in after only eight months. Adding to the company's woes was foreign exchange: The hedge against the U.S. dollar it put in place a few years ago expired at the end of 2005, resulting in a big problem for Harlequin. With more than 80% of Harlequin's business outside Canada, its exposure to currency fluctuations contributed to a 41% drop in book publishing operating profit.
The one bright spot in the Torstar portfolio is Metroland, the community newspaper group. Its advertising linage actually increased 3.1% last year, and EBITDA grew 6% to $114 million. Desjardins Securities media analyst Carl Bayard says the outlook for Torstar is relatively positive. Fairfax Financial Holding Ltd.'s recent purchase of an additional stake in Torstar is an indication investors believe the stock has upside potential, and Bayard increased his 12-month target price from $22 to $25 after the company's Q1 results, released May 2. Torstar's net income shot up 60% to $15.7 million.
Looking ahead, Torstar will continue to try to cut costs and will likely build on its Metroland operations by acquiring more newspapers, Bayard says. Torstar could also sell its 20% stake in CTVglobemedia, bought last year at 10 times EBITDA, for a profit. Many investors saw the purchase as potentially detrimental. But now that price looks like a bargain and, says Bayard, “appears to be a stroke of genius.”
