Ad slowdown expected, Transcontinental downgraded by analyst

A report issued yesterday by a leading analyst suggests that some of Canada's largest media companies, including Transcontinental, the largest producer of consumer magazines, are facing a slowdown in advertising spending that may continue for two or three years. According to a story from The Canadian Press:

Canada's largest media companies should continue to be hit by an anticipated slowdown in advertising spending before a recovery takes place in 2010, an industry analyst said Thursday.

Drew McReynolds of RBC Capital Markets says he has lowered his performance expectations because he believes a healthy growth in advertising spending over the last five years should slow.

Canadian advertising spending remains reasonably healthy, but advertising buyers - often leading indicators - indicated as early as November that Canadian and U.S. advertisers were becoming increasingly cautious heading into 2008.

In a report issued Thursday, McReynolds said the media sector has significantly underperformed.

Ten of 13 stocks covered have underperformed the S&P/TSX Composite in 2007, with nine stocks generating negative returns.

Since June 30, all stocks covered have underperformed the index.

As a result of the overall uncertainty, RBC downgraded Transcontinental (TSX:TCL.A) and Torstar (TSX:TS.B).

Among its recommendations are Thomson Corp. (TSX:TOC), Quebecor Inc. (TSX:QBR.B) and Yellow Pages (TSX:YLO.UN) in the publishing and printing sectors.

Astral Media Inc. (TSX:ACM.A), Corus Entertainment (TSX:CJR.B) and Kaboose (TSX:KAB) are the top picks in the broadcasting and new media sectors.