Results that were a little better than he expected have Echelon Wealth Partners analyst Rob Goff feeling good about Cogeco (TSX:CCA).
On July 13, Cogeco reported its Q3, 2017 results. The company earned $76.2-million on revenue of $565.2-million, a topline that was up 4.6 per cent over the same period last year.
“Over all we are pleased with our results for the third quarter of fiscal 2017,” said CEO Louis Audet. “Cogeco Connexion, our Canadian broadband subsidiary, has seen marked growth in terms of both revenue and EBITDA. Atlantic Broadband continues to produce positive results, in line with expectations. “Our American subsidiary is concentrating its efforts on investments in Florida, a region with a strong potential for growth. On this note, we were very pleased to announce on July 10 the acquisition of the MetroCast cable systems, allowing Atlantic Broadband to increase its presence in the growing and lucrative U.S. cable market. Moreover, we are delighted to be partnering with CDPQ in this transaction, providing us with a long-term partner with a similar vision.”
Goff says he believes Cogeco has little downside, but not exactly tremendous upside.
“We remain positive towards CCA’s execution and its role as a consolidator of US systems serving second tier centres that can be integrated with ABB,” the analyst says. “We believe its partnership with CDPQ and ABB equity support accretive moves. We highlight that CCA has generated excellent returns for shareholders of late, with a price return of 30.2% over the last 12 months. We continue to see limited downside given the current valuation at 6.7x F2017 EV/EBITDA and its FCF yield at 9.3%. However, with ~$20/shr in EBITDA, the shares have aggressive leverage to modest valuation moves leaving them subject to sentiment shifts. Looking for positive momentum across the three operating units over the next 6-12 months supports the potential for a modest positive revaluation.”
In a research update to clients last week, Goff maintained his “Buy” rating and one-year price target of $90.00 on Cogeco, implying a return of 9.6 per cent at the time of publication.
Goff believes Cogeco will post Adjusted EBITDA of $1.00-billion on revenue of $2.24-billion in fiscal 2017. He expects those numbers will improve to EBITDA of $1.12-billion on a topline of $2.46-billion the following year.