Cogeco in ‘most vulnerable competitive position’ in telecom, Barclays says

Cogeco Communications
Cogeco's Canadian cable operations are limited by planned heavy investments, the investment research firm said. (Image: Cogeco Communications)

While the recent closure by its Atlantic Broadband subsidiary of its $1.4 billion purchase of MetroCast further diversified its holdings into higher growth U.S. regions, Canadian cable operator Cogeco’s low-growth core assets put it in “the most vulnerable competitive position” of any telecom company Barclays covers, the investment bank’s research arm says. 

“While we believe expansion into U.S. cable provides attractive growth potential and another sizable U.S. acquisition could drive the stock higher, the segment’s financial contribution is limited by heavy investments over the next couple of years,” Barclays said in a note to investors Friday. 

Barclays issued its report as Cogeco confirmed that Atlantic Broadband had also paid $16.4 million to acquire pieces of FiberLight’s dark fiber network in South Florida.


Like this story? Subscribe to FierceVideo!

The Video industry is an ever-changing world where big ideas come along daily. Cable, Media and Entertainment, Telco, and Tech companies rely on FierceVideo for the latest news, trends, and analysis on video creation and distribution, OTT delivery technologies, content licensing, and advertising strategies. Sign up today to get news and updates delivered to your inbox and read on the go.

RELATED: Cogeco snaps up large portion of FiberLight’s Florida dark fiber network

With Atlantic Broadband in the process of launching 1-gig services in and around Miami, among other network upgrade projects, the company’s capex intensity is likely to increase to the “mid-to-high 20%” range this year, Barclays said, “and margins will also see some ongoing pressure.”

RELATED: Cogeco closes on $1.4B MetroCast purchase

However, Barclays isn’t the only investment research arm bullish about the prospects from U.S. corporate tax giveaways. 

“The tax reform and the recent investment and acquisitions are expected to extend CCA’s U.S. tax holiday by an additional year to the end of 2024,” noted Scotiabank analyst Jeff Fan, in another investor note released late last week. “In light of the growth opportunity that the company expects in South Florida, the timing [of the MetroCast purchase] makes sense.”

Barclays also noted, however, that Cogeco’s American operations yield only about 33% of its EBITDA. Most of the business is still situated in Canada and faces tight competition from fiber operators. 

“The cable business in Canada is heavily reliant on pricing for growth, but we believe it has limited pricing power as a sub-scale player with no long-term quad-play bundling capability,” the firm added. 

Suggested Articles

CBS and Viacom have officially set the executive team that will lead their digital services including CBS All Access, Showtime and Pluto TV.

The FreeWheel Council for Premium Video is calling for the adoption of a universal standard for managing cross-platform ad campaigns.

Roku is rolling out a discounted bundle deal for its users that buy both Showtime and Starz subscription streaming services on the Roku platform.