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Cogeco reports mixed earnings, stable growth

Montreal-based cable company Cogeco Cable Inc. reported mixed earnings on Thursday that were mainly in line with analysts' expectations, with profit dropping by about 40 per cent despite stable subscriber growth.

The steep fall off in profit to $33.6-million in the first fiscal quarter of 2011, down from $56.7-million in the same quarter last year, was the result of a one-time favourable income tax adjustment last year. Earnings per share were down from $1.15 last year to $0.69 in the quarter, but adjusted earnings were up about 25 per cent from $0.55 to $0.69, which beat analysts' expectations.

The good news came from the subscriber numbers, however, with strong growth in its Canadian operations - which are mainly in rural areas, where analysts point out there are fewer competitive pressures - and some growth in Cogeco's Cabovisao acquisition in Portugal, where intense competition and a blossoming government debt crisis has acted as a drag on the company's growth in the past. Cogeco added slightly more than 70,000 Canadian subscribers in the quarter and roughly 20,000 customers in Portugal, where the company has been forced into being aggressive both to gain clients and to retain its customer base. The growth in cable, Internet and digital phone subscribers, however, is only up 1.2 per cent from the same time last year.

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Desjardins Securities analyst Maher Yaghi wrote in a note to clients that Cogeco's operations in Portugal continue to be hit by a negative foreign exchange impact, but that subscriber results were strong. "The Canadian operations continue to perform well, yet remain valued at a discount to peers," he wrote. "We do not believe this discount is warranted."

Earnings, which came in at $331-million, beat some analysts' estimates and hinted at a potentially strong year ahead. Canaccord Genuity analyst Dvai Ghose is bullish on the stock based on its growth potential, the relative lack of competition in its Canadian areas, a stabilizing situation in Portugal, and solid subscriber growth.

The company said it was raising its outlook for 2011 because of its results.

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