No sun­shine for Co­geco in its bet on the cloud

PEER 1 SLID­ING

National Post (National Edition) - - FP INVESTING - ChrisTo­pher reynolds

MON­TREAL • Co­geco Inc.’s new CEO is leav­ing the door open to a slim­down or sell­off of its cloud ser­vices provider down the line, though he stressed con­tin­ued com­mit­ment in the near term.

“We re­main open to all op­tions,” said Philippe Jette twice on a con­fer­ence call with in­vestors Fri­day.

Co­geco Peer 1, which Jette headed be­fore tak­ing over the top spot from long­time CEO Louis Audet in Septem­ber, saw rev­enue dip 3.2 per cent year-over-year to $67.7 mil­lion in the quar­ter ended Nov. 30. That was after rev­enue fell 4.5 per cent be­tween the first quar­ters of 2016 and 2017.

The sub­sidiary of Co­geco Com­mu­ni­ca­tions Inc. brings in only 11 per cent of the com­pany’s rev­enues, which de­rive from busi­ness-to-busi­ness prod­ucts and in­for­ma­tion tech­nol­ogy ser­vices.

But an­a­lysts have long fret­ted about the per­for­mance of Peer 1, with the lat­est re­sults fall­ing be­low an­a­lysts’ ex­pec­ta­tions and prompt­ing one RBC Do­min­ion Se­cu­ri­ties ex­ec­u­tive to cite “an­other step back” for the Mon­treal-based par­ent com­pany.

Jette stressed var­i­ous at­tempts at re­newal for Peer 1, whose pre­de­ces­sor Co­geco ac­quired in 2012.

“We have in­vested a lot of ef­fort to turn it around. Com­pe­ti­tion is very in­tense,” Jette told re­porters Fri­day.

“Some­times you make good plans and good guesses, but it’s a ques­tion of tim­ing.

“Things have not worked in our favour in the first quar­ter of this year. We are go­ing to roll up our sleeves and see, can we do bet­ter for the next quar­ter?”

Co­geco Inc. brings in the vast ma­jor­ity of its rev­enues through re­tail cus­tomer ca­ble op­er­a­tions. Its smaller U.S. di­vi­sion has been gain­ing sub­scribers over the past few years, but its Cana­dian busi­ness has strug­gled with fall­ing cus­tomer num­bers as it strives for growth in IT ser­vices.

Peer 1 faces some stiff com­pe­ti­tion. In 2016, ri­val BCE Inc. bought out the re­main­ing 65 per cent of data cen­tre op­er­a­tor Q9 Net­works Inc. for $675 mil­lion. The year be­fore, U.S.-based Zayo Group Hold­ings Inc. bought Man­i­toba Tele­com Ser­vices’ All­stream unit, which pro­vided cloud com­put­ing to busi­ness clients.

After stak­ing some of its hopes on Peer 1 — which now has 16 data cen­tres lo­cated in Canada, the United States and the United King­dom and cus­tomers in more than 50 coun­tries, mainly in North Amer­ica and Western Europe — the Co­geco sub­sidiary’s rev­enues fell eight per cent be­tween 2014 and 2018 to $279.7 mil­lion.

In the lat­est quar­ter, Peer 1 earn­ings be­fore in­ter­est, tax, de­pre­ci­a­tion and amor­ti­za­tion fell 10 per cent to about $17.8 mil­lion.

“The seg­ment was af­fected by con­tin­ued com­pet­i­tive pres­sure in host­ing and con­nec­tiv­ity ser­vices, lead­ing to higher churn,” said Des­jardins an­a­lyst Ma­her Yaghi in a note to in­vestors.

Things weren’t all bad for in­vestors at Co­geco’s an­nual gen­eral meet­ing Fri­day.

A re­cent ac­qui­si­tion by the com­pany’s ca­ble and in­ter­net seg­ment pushed up first-quar­ter rev­enue, though profit was down due to higher costs as­so­ci­ated with in­te­grat­ing and re­struc­tur­ing the busi­ness.

Co­geco Inc.’s rev­enue bump to $674 mil­lion from $585.7 mil­lion last year was largely at­trib­ut­able to last year’s ac­qui­si­tion of the MetroCast ca­ble sys­tems by Co­geco Com­mu­ni­ca­tions Inc., ac­cord­ing to the tele­com.

Co­geco Inc.’s net in­come at­trib­ut­able to share­hold­ers for the quar­ter fell to $26.2 mil­lion or $1.60 per di­luted share.

That com­pared with $29.5 mil­lion or $1.78 per di­luted share a year ago.

WE HAVE IN­VESTED A LOT OF EF­FORT TO TURN IT AROUND.

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