Company Reports

We transfer coverage of the Canadian telecom providers: Rogers, BCE, Telus, Quebecor, and Cogeco. These firms account for nearly all of the wireless and wireline services provided in Canada, with all but Cogeco operating national wireless networks, and Rogers and BCE the largest wireline networks.

Cogeco has successfully expanded its broadband networks into underserved Canadian and US markets with lighter competition. However, we expect this advantage to narrow over time as established incumbents close coverage gaps, making significant revenue growth and margin expansion difficult. We therefore view Cogeco’s strategy as sensible but increasingly dependent on defending existing customers rather than expanding its footprint.

The rate of Cogeco's revenue decline did not improve during its fiscal third quarter, and the progress the firm promised to make in its downtrodden US broadband business was almost imperceptible. However, the trend of EBITDA margin expansion continued, and free cash flow spiked.

Cogeco has had success building fixed-line networks in underserved markets with relatively low competition. However, we expect continued encroachment on its territory as its most significant competitors look to expand their fiber networks in the US and Canada. Along with consumers continuing to cut TV and landline phone services, Cogeco faces a challenging path of minimal revenue growth. However, the loss of low-margin TV subscriptions should help drive firmwide profitability as internet services become a larger mix of its business.

Disappointing fiscal second-quarter operating results were directionally consistent with the weakness that Cogeco Communications expected, but progress made last quarter in the US reversed, and the firm reduced its full-year sales and profit guidance.

Cogeco's fiscal first-quarter revenue declined 4% year over year, due mostly to a steep drop in US customers in 2025. However, the company lost only 1,100 net US internet customers this quarter, easily the best result in years. It lost over 90,000 net US internet customers during fiscal 2023-25.

Cogeco has successfully brought down some costs and had an excellent fiscal fourth quarter in adding new Canadian internet subscribers. However, secular declines in landline phone and pay TV kept Canadian revenue shrinking, and performance in the US business remained poor.

Cogeco has had success building fixed-line networks in underserved markets with relatively low competition. However, we expect continued encroachment on its territory as its most significant competitors look to expand their fiber networks in the US and Canada. Along with consumers continuing to cut TV and landline phone services, Cogeco faces a challenging path of minimal revenue growth. However, the loss of low-margin TV subscriptions should help drive firmwide profitability as internet services become a larger mix of its business.

Cogeco has had success building fixed-line networks in underserved markets with relatively low competition. However, we expect continued encroachment on its territory as its most significant competitors look to expand their fiber networks in the US and Canada. Along with consumers continuing to cut TV and landline phone services, Cogeco faces a challenging path of minimal revenue growth. However, the loss of low-margin TV subscriptions should help drive firmwide profitability as internet services become a larger mix of its business.

Cogeco Communications reported a 4.1% year-over-year decline in third-quarter revenue and a 2.4% decline in adjusted EBITDA, resulting in a near-50% margin, a five-year high. Management lowered full-year revenue guidance, while maintaining adjusted EBITDA and raising free cash flow guidance.

Cogeco has done a good job of building fixed-line networks in underserved markets with relatively low competition. However, we expect competitors to continue to impede its locations as its most significant competitors look to expand their fiber networks in the US and Canada. Additionally, as consumers continue to cut TV and landline phone services, we think Cogeco faces a challenging path of minimal revenue growth. Yet, losses in low-margin TV subscriptions should help drive firmwide profitability as internet services become a larger mix of its business.

Cogeco Communications posted a revenue decline of 2.7% in constant currency for the second quarter, highlighting the competitive wireline environment in Canada and the US. However, EBITDA was stable, and the EBITDA margin at nearly 49% is evidence of management's focus on cost reduction.

Cogeco has done a good job of building fixed-line networks in underserved markets with relatively low competition. However, we expect competitors to continue to impede its locations as its most significant competitors look to expand their fiber networks in the US and Canada. Additionally, as consumers continue to cut TV and landline phone services, we think Cogeco faces a challenging path of minimal revenue growth. Yet, losses in low-margin TV subscriptions should help drive firmwide profitability as internet services become a larger mix of its business.

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.

Cogeco has done a good job of building fixed-line networks in underserved markets with relatively low competition. However, we expect competitors to continue to impede its locations as its most significant competitors look to expand their fiber networks in the US and Canada. Additionally, as consumers continue to cut TV and landline phone services, we think Cogeco faces a challenging path of minimal revenue growth. Yet, losses in low-margin TV subscriptions should help drive firmwide profitability as internet services become a larger mix of its business.