Byron Capital’s Goff raises target on Cogeco to a street-high $50

Byron Capital analyst Rob Goff says Cogeco has historically traded at a discount to its peers, but the company’s move into managed services should moderate, not to say eliminate, that discount. As January came to a close, Cogeco Cable (TSX:CCA) completed the acquisition of Vancouver-based Peer 1 Networks, with nearly 97% approval. The Quebec-based telco paid $3.85 a share for the pickup, which was a a 32.1% premium to Peer 1′s 20-day volume-weighted average share price at the time.

Cogeco CEO Louis Audet said the deal opens up areas of growth.

“We are excited that all conditions of our offer have been satisfied and are thrilled with the prospects this acquisition presents to Cogeco Cable shareholders, customers and employees,” he said. “We are fully committed to implementing our growth strategy in the data centre services sector and to further develop our robust service suite for businesses across Canada, the U.S. and parts of Europe. Peer 1, along with Cogeco Cable’s subsidiary Cogeco Data Services, will focus on delivering a seamless solution for our customers’ increasingly sophisticated and complex needs. The infrastructure and expertise of both organizations provides us with the scale and scope to maximize potential growth in the enterprise services market.”

Byron Capital’s Rob Goff likes the Peer 1 acquisition. He says that cable operators are facing mature markets, and the business data and managed services market offers growth to them. Goff says he is very bullish on this sector because he sees an estimated 3:1 equity value-to-capex ratio, with rising barriers to entry. In a research update to clients yesterday, Goff maintained his BUY rating and raised his target price on Cogeco to a street high $50.

Vancouver-based Peer 1 Networks, which was founded in 1999, provided Internet hosting services such as managed hosting, dedicated servers, and cloud computing. At the time of the Cogeco acquisition, the company boasted more than ten-thousand customers with seventeen data centers located in Canada, the U.S. and the U.K. Peer 1 customers included household names such as Plenty of Fish, Virgin Gaming and WordPress.com. The company’s revenue has grown steadily, from $89.3-million in fiscal 2008 to the $133.6-million it reported as 2012′s topline in September.

Goff says Cogeco has historically traded at a discount to its peers, but the company’s move into managed services should moderate, not to say eliminate, that discount.

At press time, shares of Cogeco were down .5% to $42.77.

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