MetroCast buy pricey but ‘makes sense’ for Cogeco, which needs to get out of Canada, analyst says

The purchase of MetroCast through its Atlantic Broadband subsidiary was “not cheap” at $1.4 billion, but makes strategic sense for Quebec-based Cogeco Communications as it seeks to expand in a U.S. market less competitively fraught with fiber than Canada, said Barclays analyst Phillip Huang.

“It expands Cogeco’s U.S. footprint and adds 233,000 PSUs in what appears to be an underpenetrated market with good demographics,” Huang said in an note to investors this morning. 

Atlantic Broadband paid $200 million for MetroCast’s Connecticut operation back in 2015.

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RELATED: Atlantic Broadband buys the rest of MetroCast for $1.4B

“Integration will be relatively low-risk,” Huang added, “given the ‘practice run’ from the Connecticut operations acquisition in 2015.”

Notably, the analyst also said, “exposure to fiber competition is lower vs. Canada and unlikely to change significantly in the foreseeable future given the lower density of the footprint.

Indeed, with 56% of Cogeco’s business still in Canada, the company faces “long-term challenges,” Huang said.

“Management is clearly focusing their growth efforts in the U.S. and diversifying away from the Canadian landscape, where the long-term competitive risks are much greater given the expansion of telco fiber and high entry barrier in wireless,” he wrote. “While we are positive on Cogeco’s U.S. cable business, we believe Cogeco’s Canadian business has the most vulnerable competitive position in our telecom coverage universe and will face growing structural disadvantages in competing against scale players (e.g. BCE) in the coming years.”

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