• Among the best positioned cable and telecom companies in Canada to grow both organically and through acquisitions

Strong free cash flow supports double-digit dividend growth over the next couple of years

Opportunity for accretive merger & acquisition (M&A) activity in the US cable operations

Rating	Buy-Above average Risk
Target	$57.50
Symbol	CCA
Exchange	TSX
Sector	Consumer Discretionary
Recent price	$50.87
Total potential return	15%
52-week range	$41.59-52.29
Market cap	$2,438m
Year-end	Aug-31
Revenue	2013E 2014E 2015E	$1,692m $1,906m $1,950m
EBITDA	2013E 2014E 2015E	$781m $879m $897m
EPS	2013E 2014E 2015E	$3.78 $4.53 $4.87
Net debt/total capital	68%
Dividend per share	$1.20
Dividend yield	2.4%

Cogeco Cable Inc. provides cable television, high-speed Internet, telephony, managed information technology and infrastructure, and other telecommunication services to residential and commercial customers in Canada, the United States, United Kingdom and France. Over the past few years, the company has significantly expanded its operations through the acquisition of a US cable company, as well as one of the leading web-hosting providers in the world. The company operates in three segments: Canadian Cable Services, American Cable Services and Enterprise Services.

In our view, Cogeco Cable is among the best positioned cable and telecom companies in Canada to grow both organically and through acquisitions. Moreover, the company has ample room to raise its dividend at double-digit rates over the next couple of years, thanks to solid free cash flow growth.

We note that Cogeco Cable is facing competition in Internet Protocol TV services in an increasingly larger portion of its operating territory—around 25% of its Canadian operations currently, by our estimation. Hence, we expect Cogeco Cable to report tempered subscriber metrics, although this should be offset by growth in the enterprise services and US segments, and by an improvement in cable margins as client mix improves.

With regard to external growth, several opportunities exist for smaller tuck-in acquisitions within the US cable segment, given there are ~15 potential M&A targets in the company’s surrounding operating area in the US. Any acquisitions would be small, incremental and self-funded but potentially accretive to earnings in the first year.

Cogeco Cable trades at a discount relative to the Canadian group average (6.0x forward EV/EBITDA vs peers at 7.0x), which is unwarranted in our view given the company’s growth profile and improving profitability metrics. Our one-year target price of $57.50 is based on the average of three valuation methods.

We maintain a Buy rating on Lundin but have recently increased our target to $5.20 (from $5.00). However, with single-digit upside to our target and the relative risk/reward opportunity, we decided to exclude the stock from this list.

Following a takeover offer from Goldcorp, the stock appreciated ~28%. Given limited upside potential our target, we have downgraded our rating to Hold.