April 8, 2011 / 12:13 PM / in 6 years

UPDATE 2-Cogeco ekes out Q2 growth, pays down debt

* Cogeco Q2 EPS C$0.63 vs est C$0.75

* Cogeco Cable Q2 EPS C$0.64 vs est C$0.68

* Purchase of radio assets adds to revenue

* Cogeco Cable stock off 1.2 percent, Cogeco dips 0.1 pct (Adds subscriber numbers, analyst quotes, share move)

By Alastair Sharp

TORONTO, April 8 (Reuters) - Media and telecom company Cogeco Inc CGO.TO and its main Cogeco Cable (CCA.TO) unit posted lower than expected quarterly profits on Friday, squeezed by rising costs, an early debt repayment and intense competition faced by a Portuguese operation.

Montreal-based Cogeco Inc posted a net profit of C$10.6 million, or 63 Canadian cents a share, in the second quarter, almost identical to a year ago. Revenue rose 7 percent to C$350.6 million.

The more closely watched Cogeco Cable, in which Cogeco Inc holds voting control via a 32 percent equity stake, posted a net profit of C$31.2 million, or 64 Canadian cents per share, compared with a profit of C$29.8 million, or 61 Canadian cents a share a year ago. Revenue rose 5 percent to C$336.6 million.

The Cogeco Cable unit provides cable television, high-speed Internet and telephone services in Canada and Portugal.

The cable operation added 29,666 digital television customers, 17,964 telephone users and 10,992 high-speed Internet accounts. It lost 1,543 basic cable customers.

“Canadian subscriber growth showed decent growth trends,” said Maher Yaghi of Desjardins Securities, who said the stock is undervalued.

In Canada, Cogeco Cable primarily serves rural areas of Ontario and Quebec where competition is less fierce.

In Portugal, the unit’s Cabovisao competes with state-owned Portugal Telecom and ZON Multimedia ZON.LS. Pricing wars there have squeezed profit margins.

“As usual, Portugal was weak,” said BMO capital Markets analyst Tim Casey, who rates Cogeco Cable “outperform”.

He said the stock is attractive relative to its peers as it is not building out a wireless service -- unlike Quebecor’s (QBRa.TO) Videotron or Shaw Communications (SJRb.TO) -- and is somewhat protected in the short term from the intrusion of BCE Inc’s (BCE.TO) Bell Fibe Internet TV in its territories.

Analysts had, on average, expected Cogeco Inc to earn 75 Canadian cents a share on revenue of C$349.4 million, and Cogeco Cable to earn 68 Canadian cents a share on revenue of C$339.1 million, according to Thomson Reuters I/B/E/S.

Cogeco’s operating costs rose 5 percent, while Cogeco Cable saw a 2 percent increase. It paid C$8.8 million on prepayment of debt refinancing.

Cogeco bought 11 radio stations in Quebec from Corus Entertainment (CJRb.TO) for C$80 million in a deal that closed in February. It will sell three of them.

Cogeco upped its 2011 revenue forecast in January after warning last July that growth this year would lag expectations.

Rogers Communications (RCIb.TO), a larger cable rival and Canada’s biggest wireless carrier, increased its sizable minority stakes in both Cogeco and Cogeco Cable in November. [ID:nN04239625]

Cogeco dipped 0.1 percent to C$42.36 Friday morning on the Toronto Stock Exchange, while Cogeco Cable fell 1.2 percent to C$43.35.

$1=$0.96 Canadian Additional reporting by Aftab Ahmed in Bangalore; editing by Rob Wilson

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