Inflation has become everyday news around the world. While Canada was spared the worst of the economic downturn that began in late 2008, a recent survey by the Royal Bank found 45% of Canadians say that higher gas and food prices are “significantly impacting” their budgets. In February of this year, gas prices had risen 16% over 2010, and are up a whopping 64% since 2002.
Investors looking to benefit from inflationary trends may have noted that in 2008, soaring oil prices led to Exxon’s becoming the world’s most profitable company, with earnings over $45 billion. Canadian oil and gas companies, naturally, followed the trend. Now our largest player, Suncor (TSX:SU) rose from $12.60 to $70.34 in the five year period between May 23rd, 2003 and May 23rd, 2008. After a pullback in 2008, Suncor is on the move again, edging near the $50 mark.
But soaring gasoline prices has economic effects outside of simply padding the coffers of oil and gas companies worldwide. Fewer people drive. Some telecommute. Real estate with a high “walkability” quotient becomes more valuable. People do more of their shopping online. Governments invest in alternative energy solutions. The reaction, in terms of dollars, is enormous.
So when gas prices inevitably hit the sticker shock level in July and August are there Canadian technology companies that will benefit? We examine three that actually might.
1. Westport Innovations (TSX:WPT)
“You know I’m excited about this…I need you to check my enthusiasm…” On June 3rd of this year Jim Cramer of CNBC’s Mad Money’s was positively gushing in an interview with Westport Innovations CEO David Demers. Cramer felt the political winds of change were behind the Vancouver based developer of natural gas engines. Demers, clearly not as prone to bombast as the volcanic host conceded that “The spill in the gulf is a wakeup call that we need to do something now.” That something, the adoption of natural gas as what Cramer called a cleaner “transition fuel” that could bring energy independence to the United States, will be helped along by Westport Innovations, which has already partnered with three of the world’s top four top engine makers. Westport got a little international flare when it was revealed that legendary investor George Soros had, by the second half of 2010, become its largest shareholder. It would have been hard to imagine such “A” grade exposure years ago. Founded in 1996, Westport grew out of a research project by Professor Philip Hill at the University of British Columbia’s Mechanical Engineering Department. Hill was developing a concept called high pressure direct injection (HPDI) of natural gas. In 1994, through UBC’s University-Industry Liaison Office, Hill met current Westport CEO David Demers. In 1995, with HPDI technology as its principal strategic asset, Westport Innovations Inc. was formed.
2. Electrovaya (TSX:EFL)
What was behind the rise in shares of Electrovaya that began last year? The long answer is a more than a decade’s worth of pioneering work and 150 patents on its lithium ion battery technology. The short answer is Chrysler. On March 24, Electrovaya announced that it had been selected by Chrysler to supply the battery for a hybrid version of the Dodge Ram pickup. The Company also appointed former Chrysler CEO (and Windsor Ontario native)Tom Lasorda to help guide them through the process. While the automobile market is probably the most immediately addressable area for Electrovaya to commercialize its battery technology, some think the company is not limited to that sector. “Electrovaya is really just scraping the surface” says Puneet Malhotra, who covers Electrovaya for Dundee Securities told Cantech Letter. “There is always execution risk, but there are applications for Electrovaya’s technology in other areas. In fact they have already begun to demonstrate its viability in electric utilities in demonstration projects.” Could Electrovaya’s technology power the vaunted Smart Grid? Some think so. Electrovaya recently signed an MOU with a Japanese manufacturer of power distribution equipment named Nippon Kouatsu Electric to use Electrovaya’s battery storage systems for both stationary power and smart grid systems applications, initially targeted for the Japanese market.
3. CriticalControl Solutions (TSX:CCZ)
There’s not a whole lot of sizzle to CriticalControl Solutions business. Fortunately, the Calgary based company has enough steak to go around. CriticalControl supplies data management and enterprise content management tools to half the provincial ministries of the Alberta government, but the bulk of its revenue comes from sales to oil and gas companies. Higher gas prices means more demand for CriticalControl’s Gas Composition Management, Gas Chart Integration and Field Device Control Technologies. Despite being consistently profitable, CriticalControl consistently falls under the radar. Byron Capital analyst Al Nagaraj, who recently initiated coverage of the company with a Buy rating and a target of $.95 cents says “investors appear to overlook the company’s competitive strengths”. Nagaraj believes the company’s technology and processes are unique. Will this praise continue to fall on deaf ears in 2011? At press time, CriticalControl traded at a market cap of approximately $30 million dollars, despite having more than $48 million in revenue in its past four quarters.
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