Cogeco Cable Acquires Toronto Hydro Telecom

TD Newcrest analyst Vince Valentini is warning against a knee-jerk reaction to Cogeco Cable Inc.'s (CGEAF.PK) C$200-million acquisition of Toronto Hydro Telecom [THT] on Friday.

In a note to clients Monday, Mr. Valentini acknowledges the purchase could be viewed as dilutive to Cogeco shares and that it is a departure from the company's strategy of buying telcos in cities where it already operates.

However, Mr. Valentini understands that Toronto Hydro has won some new contracts in the past year - such as with the Toronto District School Board - that may not be fully reflected in earnings estimates. He also believes Cogeco may shutter Hydro's (rumored) money-losing  WiFi operation in downtown Toronto, providing another potential boost to earnings.

He wrote:

We do not view THT as an ideal or fantastic acquisition for Cogeco, but we much prefer this use of capital close to home versus another high risk move in Europe.