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Cogeco expects internet services to drive growth as customers work from home

MONTREAL — Cogeco Inc. expects to see overall growth in revenue, adjusted earnings and cash flow in its next quarter, which ends Aug. 31, but its executives said Thursday they can't predict over a longer term.

The company operates the Cogeco Connexions cable and internet system in Ontario and Quebec, the Atlantic Broadband business in the United States and a radio-television media business in Quebec.

Chief financial officer Patrice Ouimet told analysts on a conference call that Cogeco can't predict what will happen when governments end their financial supports for businesses and consumers.

The level of uncollected payments, or receivables, is higher than normal because Cogeco and the rest of the industry didn't disconnect customers while they were confined due to COVID, he said.

"We do expect a large number of customers to pay some of the longer-dated bills. But obviously, it does increase bad debt," Ouimet said.

Among Cogeco's commercial clients, he said there's been a drop in video services to the hospitality industry but internet and phone service have held up because they're more core to the businesses. 

Similarly, Cogeco chief executive Philippe Jette told analysts that the company's media business, particularly its Quebec radio stations, continues to see pressure on advertising revenue.

"As most retail stores in Quebec were forced to close temporarily during the months of March, April and May, they significantly reduced or completely stopped their media spending," Jette said.

"The severity and length of the crisis and its economic impact on radio advertising revenue, especially on the retail industry, remains unknown at the moment."

Cogeco Inc. reported late Wednesday that its third-quarter profit from continuing operations was $97.5 million, down 4.9 per cent from nearly $102.6 million last year.

Revenue for the three months ended May 31 was up 1.4 per cent to $626 million. However, Cogeco's revenue would have been down 0.6 per cent with about $12 million attributable to a weaker dollar.

Analyst Aravinda Galappatthige of Canaccord Genuity wrote that internet subscriber additions were higher than he expected due to demand for higher speeds due to work from home.

In Canada, Cogeco Connexions gained 5,200 internet subscribers (vs. Canaccord's estimated loss of 3,500) and Atlantic Broadband gained 12,400 internet subscribers (vs. Canaccord's estimate of 7,300.) 

However, Galappatthige said Cogeco lost more video subscribers in Canada than expected, dropping 11,400 compared with his an estimate of 10,700 lost video subscribers.

— by David Paddon in Toronto

This report by The Canadian Press was first published July 16, 2020.

Companies in this story: (TSX:CCA, TSX:CGO)

The Canadian Press