UBS Analyst: Cogeco Is Most Defensive Play in Cable

Canadian cable company Cogeco Inc. (CGEAF.PK) is the safest bet in the sector, according to UBS analyst Jeffrey Fan who initiated coverage on the company yesterday.

Mr. Fan wrote in his note to clients:

Cogeco Cable is the only publicly listed [cable company] that will generate growing free cash flow in 2009 and 2010 as its peers [Videotron and Shaw] invest in wireless.

That makes “[Cogeco] the most defensive play in cable,” he added.

Shaw Communications Inc. (SJR) said today it won’t make any major investments in wireless next year, although it spent C$200-million this year to gain access to the market.

He expects Cogeco’s Canadian business to remain stable and resilient enough to generate double-digit organic growth in earnings and cash through the next two years.

Cogeco also operates in Portugal, a market Mr. Fan says is ripe for consolidation. Because the company lacks the scale to compete there, Mr. Fan believes the company should sell out of the market at a good price.

He initiates coverage with a "buy" rating and a target price of C$44, which is 20% upside to its current price.