Cash. At least as far back as Ben Graham value investors will tell you it helps provide a margin of safety by reducing the gap between the price of a stock and its value. Cash can, when employed through the use of share buybacks or the issue of dividends, enable a public company to mitigate risk.
But growth investors might tell you that cash is an important part of that discipline. Cash can add flexibility for rapid expansion, perhaps by allowing a tech company to snatch up an exciting rival.
With the vast majority of the financing activity in Canada focused on the mining sector, most of the companies in this month’s issue have something in common; they didn’t go to the equity markets for their cash. Instead, they earned it. In this issue we examine Canada’s best capitalized technology stocks. Our methodology is to determine the percentage of cash and short term investments each company has then compare it to their market capitalization. This is the percentage you will see beside each company’s name in this issue. This survey encompasses stocks in the TSX Technology, Cleantech and Life Sciences sectors.
Canada’s Best Capitalized Tech Stocks.
Category ONE: Market Capitalization in Excess of $1 Billion.
1. MacDonald Dettwiler (TSX:MDA) 38%
Market Cap as of May 20th, 2011: $2.3 billion
Cash and Short Term Investments: $826 million
Since 1969, when John MacDonald and Werner Dettwiler formed their eponymous venture, McDonald Dettwiler has been a part of the fabric of Canadian technology. MDA’s CanadaArm, a robotic space arm developed in the 1970’s to repair and service NASA space shuttles, is iconic. But with the Canadarm set to literally, become history in the Canada Aviation and Space Museum in Ottawa, MDA has been forced on the rocky road of reinvention. MDA’s fiscal 2010 revenue of $689 million pales compared to the 1.2 billion the company did just three years prior, in 2007. But the company is rebounding on newfound success generating revenue on large satellite contracts. Q1 2011 was boosted by the $819 million sale of the company’s property information business, and MDA has put the cash to use with recent dividends and share buybacks. Recently, Cantech Letter caught up with MacDonald Dettwiler’s CFO Anil Wirasekera.
2. Celestica (TSX:CLS): 29.6%
Market Cap as of May 20th, 2011: $1.97 billion
Cash and Short Term Investments: $584 million
Celestica, an IBM spinoff with a long history in Canada, has in the past been accused of not being a technology stock at all, but a manufacturing concern. Celestica is in a business called electronics manufacturing services (EMS). Outsource manufacturing is, at best, a business with razor thin margins. Add increasing pressure from China and the prospects are doubly perilous. That’s why former Ford and GE exec Craig Muhlhauser, who was appointed President and CEO of Celestica in 2006, began looking for ways to modernize and differentiate Celestica’s business. The answer? Celestica is now looking to move away from contract manufacturing and into what Muhlhauser calls becoming “supply chain solutions company”.
3. Westport Innovations (TSX:WPT) 17.6%
Market Cap as of May 20th, 2011: $1.05 billion
Cash and Short Term Investments: $185 million
Founded in 1996, Westport is a developer of environmental technologies such as high-pressure direct injection combustion technology. This technology allows diesel engines to operate on cleaner burning gaseous fuels, such as natural gas, without sacrificing performance or fuel economy. 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. Today the company does more than $120 million in revenue (FY 2009) and has created valuable strategic alliances with some of the world’s largest engine and vehicle manufacturer, such as Volvo, Cummins, and Kenworth.
Recent improvement in technologies such as shale fracking and the production of liquefied natural gas from coal bed methane have driven up the supply of natural gas and subsequently sent the price plummeting. US Congress has prepared legislation, with bipartisan support, that would provide incentives to large fleet operators to switch to natural gas vehicles. There are currently more than 12 million natural gas vehicles in the world, but barely 120,000 in the United States.
4. Evertz Technologies (TSX:ET) 12.3%
Market Cap as of May 20th, 2011: $1.22 billion
Cash and Short Term Investments: $151 million
Evertz Technologies derives it name from its founder, Dieter Evertz. Evertz founded the company in 1966, before selling to a group that included current bosses Romolo Margarelli and Doug DeBruin, who came over from Leitch Technologies. The Company went public in 2006, raising $67 million in a TSX IPO. Evertz is seeing increasing success as a broadcasting infrastructure play. The Company’s product line includes timecode equipment, closed captioning technology and multiviewers. Evertz’s products have been used in the production of Star Wars III, Rocky 6, CSI, Oprah and the 2008 Olympics.
5. SXC Health (TSX:SXC) 8.9%
Market Cap as of May 20th, 2011: $3.65 billion
Cash and Short Term Invesments: $325 million
Five years ago, SXC Health was lost in the shuffle – a mid sized healthcare IT provider from Milton, Ontario with just over $80 million in revenue. Today, after aggressive acquisitions and organic growth, the company is an international healthcare IT King. SXC is a pioneer in the pharmacy benefit management sector, with 2010 revenues just a shade under $2 billion. Recently named by FORTUNE Magazine as one of the 100 Fastest Growing Companies, SXC Health has become one of the biggest Canadian technology success stories in recent memory.
CLICK HERE for PART TWO in which we list the best capitalized Canadian techs whose market cap falls between $200 million and a billion dollars.