When Cogeco Cable Inc. ventured into the risky U.S. cable market in 2012, many investors and analysts shook their heads in dismay.
Memories of Cogeco's disastrous 2006 attempt to crack the Portuguese cable market were still fresh and skepticism remained about the mid-sized company's ability to manage acquisitions outside its comfy niche in suburban and rural Southern Ontario and Quebec.
Yet, so far, there appear to have been no major missteps in Cogeco's $1.36-billion (U.S.) takeover of cable provider Atlantic Broadband.
And the subsequent $666-million (Canadian) acquisition of Web hosting provider Peer 1 Networks bolstered Cogeco's presence in the high-growth data services sector, which can offset mature cable operations.
How well the integration of Atlantic and Peer 1 is going, as well as efforts to trim the debt that funded those two acquisitions, are likely to be discussed Tuesday on the first-quarter conference call with president and chief executive officer Louis Audet and members of his management team. Financial results are scheduled to be unveiled Monday.
Canaccord Genuity analyst Dvai Ghose said in a recent research note that investors are undervaluing Cogeco Cable's Internet data centre and related assets, which he says are "significant growth drivers' and "provide a strong hedge against cable risk."
Also positive are free-cash-flow growth expectations, debt deleveraging and dividend growth potential, he said.
"Given its enterprise and data centre acquisitions, we expect 17 per cent of Cogeco Cable's revenue to come from enterprise and data centre services in [fiscal 2014] and 21 per cent by [fiscal 2017]," Mr. Ghose said.
RBC Dominion Securities analyst Drew McReynolds said in his first-quarter preview that Cogeco Cable's trading at a discount to its peers "adequately reflects the execution risk associated with the company's international expansion.
"Although we do not expect this valuation gap to close in the foreseeable future, improved visibility on the performance of Atlantic Broadband over the coming quarters in conjunction with steady healthy growth within Enterprise Services and a de-levering of the balance sheet could narrow the gap."
Macquarie Capital Markets analyst Greg MacDonald has a more cautious outlook.
"If we are wrong in our consolidated guidance caution, it will likely be a result of business services beating expectations."