Cogeco Cable Shares Up on Solid Q2 Results

Investors are rewarding Cogeco Cable Inc. (CGEAF.PK) for a job well done, driving shares in the cableco higher Friday morning after the company reported strong second quarter results ahead of most analyst expectations. On Friday morning, Cogeco stock was up more than 3% to C$38.85, up C$1.19.

Consolidated revenue in the quarter increased 14% year-over-year to C$265-million, and consolidated EBITDA in the quarter was C$108-million, up 25%. Recurring earnings per share of C$0.55, meanwhile, was 49% higher than a year ago.

Desjardins Securities analyst Joseph MacKay said growth within Cogeco's Canadian operations was particularly strong.

In a note to clients he said:

Revenue in Canada grew 17.3% to C$205-million, in line with our forecast, while EBITDA grew 29.2% to C$86-million, ahead of our 25% growth projection.

The analysts reiterated his "top pick" rating and C$60 price target.

Within the Portuguese operations, revenue in the quarter grew 5.1% to $60-million, in line with Mr. Mackay's estimate, while EBITDA grew 10.9% to C$22-million or C$2-million ahead of his estimate. Mr. MacKay added that the Portuguese operations added 5,189 revenue-generating units, below his estimate of 10,500, as a result of the strong competitive environment in Portugal.

RBC Capital analyst Jonathan Allen maintained his "outperform" rating and C$60 price target following the results.

In a report he wrote:

Investors will be pleased with a rebound from the Portugal division which posted in-line revenue and EBITDA nicely above our estimate, following last quarter's disappointing year-over-year EBITDA decline.

However, he cautioned investors that M&A fears could overhang Cogeco shares.

He told clients that:

Despite the improved Portugal trend this quarter, we remain cautious that management may again look to make additional European acquisitions in the coming year(s) now that Portugal is integrated and under control.

He also added that Cogeco has mentioned properties in Eastern Europe in the past which could raise both debt leverage and business risk.