Cogeco Communications: Initiating Coverage with a CAD 92 FVE and a No-Moat Rating

We are initiating coverage on Cogeco Communications with a no-moat rating and a fair value estimate of CAD 92. Cogeco has built a rural-focused broadband network across Ontario and Quebec in Canada and parts of the US, mostly across the East Coast. Although we think Cogeco's rural presence will help insulate the firm from some competition due to the higher cost of laying fiber, we expect increased competition will weigh on Cogeco's ability to add new customers. Lower population density also works against the firm in that it carries a larger capital base relative to its peers. With customer penetration rates equal to or worse than cable peers, returns on capital are weaker, leading to our no moat rating.