December 2024 was a merry month for the S&P/TSX Composite Index because it hit two new records. Canada’s primary stock index reached an all-time of 25,691.80 on the 6th, followed by an intraday record high of 25,843.20 on the 9th. As of Christmas Eve, the year-to-date gain is 18.55%.
However, the records could be sweeter if all 11 primary sectors have positive returns. Only the communications services sector is in the red, down 21.02% thus far approaching year-end. Telco giants BCE, TELUS, and Rogers Communications pulled down the sector due to their year-long slump.
An exception to the sector’s dismal showing is Cogeco Communications (TSX: CCA). At $66.14 per share, the mid-cap telco stock is up by +17.86% year to date and outperforms seven TSX primary sectors. Given its standout performance and lucrative 5.56% dividend yield, CCA is a must-buy for income-focused investors.
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Corporate structure
Cogeco Communications is the communications arm of Cogeco Inc. The $2.78 billion telecommunications provider operates through three subsidiaries: two in Canada (Cogeco and Oxio under Cogeco Connexion) and one in the U.S. (Breezeline under Cogeco US).
Connexion is the second-largest cable operator in Ontario and Québec. The subsidiary provides residential and small business customers with Internet, video and telephony services via its two-way broadband cable networks. Breezeline, the eighth-largest cable operator provider in the U.S., provides the same services and serves residential and business customers in 13 states.
Cogeco Communications is small compared to the industry giants but enjoys a unique advantage. Its competitive advantage is its significant presence in both Canada and the United States. The growth strategy focuses on growing its footprint through network expansion, increased digitization, and launching Mobile Services using a capital-efficient model.
Fiscal 2024 financial results
In fiscal 2024 (12 months ending August 31, 2024), revenue and profit declined 0.3% and 15.3% year over year to $2.97 billion and $354.13 million, while free cash flow (FCF) rose 13.9% to $476 million from a year ago. Its president and chief executive officer, Frédéric Perron, said, “Fiscal 2024 has been a year of tremendous progress for Cogeco.”
“Our Canadian telecommunications business continued to perform well in Q4, driven by growth of our Internet subscriber base through Cogeco Connexion, oxio, and our network expansion program,” he added. The Oxio brand’s digital model is a growth engine.
Perron says the recent company restructuring, the first phase of a three-year program, has simplified the operating model. He believes Cogeco is well-positioned to accelerate its digital capabilities and drive bundling across wireline and wireless. Optimizing operations for growth and value creation are ongoing concerns.
Business outlook
The Q1 fiscal 2025 results won’t be available until January 13, 2025. However, Cogeco Communications said the coming fiscal year is the first year of a three-year transformation program. Management expects the company’s investments to set the path to sustainable growth. It forecasts revenue to remain stable due to Internet subscriber growth, although lower video and wireline phone subscriptions.
Market analysts’ 12-month average price target for CCA is $79.25, a 20% potential upside. Prospective investors can earn in two ways: price appreciation and dividends. The overall return should be higher to include the 5.56% yield.
