Cantech Letter: Live from the M Partners Investor Conference

The day long conference will cover spaces such as mobile broadband, electronic payment systems, Software-as-a-Service and cloud computing, and will feature executives from Canadian tech stocks that will be very familiar to Cantech Letter readers, such as Descartes Systems (TSX:DSG), International Datacasting (TSX:IDC), WiLAN (TSX:WIN), Redknee (TSX:RKN) and Guestlogix (TSX:GXI).

Cantech Letter readers who wish to attend should know that space is very limited, but there may still be room to RSVP.

M Partners tech analyst and sometime Cantech Letter contributor Ron Shuttleworth talked to us about the upcoming conference.

Ron, why did M Partners decide to hold a conference on Canadian tech stocks?

Because nobody else in Canada is doing it as far as we can tell. And there are some really exciting Canadian small cap technology stories -both public markets and private with stories that investors need to hear. And tech investors made good money last year if they were patient. Our RES TSX Small Cap Index of the 30 most followed Small Cap Canadian technology stocks returned 16% YoY and the MPartners coverage list returned about 18%. With these types of returns, investors are beginning to pay attention again based on the interest we are receiving for the conference.

Why should investors care about Canadian tech stocks? Isn’t mining
and metals where its at?

The MPartners RES 30 Small Cap Tech index is fundamentally sound and demonstrating exceptional growth in a sluggish world economy. We think that one of the reasons why American companies continue to demonstrate excellent earnings with over 9% unemployment is because of technology investments continuously being made into US productivity – where it continues to lead the world, We think that this is one of the reasons why The RES 30 index showed over 18% EBITDA growth and 16% revenue growth despite an economy with 2.5% GDP growth. In the past, tech stocks traded at a premium earnings multiple to the market – usually 15% to 20%, Not anymore – tech stocks actually trade at a discount to the main index now. We think there is opportunity here.

What’s your general opinion of the valuations of Canadian techs in general?

We think that Canadian small cap tech is undervalued in comparison to tech on other exchanges, and it certainly trades at a discount to its historical relationships to other sectors on the TSX. Over the past 10 years, the TSX has become increasingly oriented towards mining and materials – which reflects an increasing focus on commodities as BRIC emerges and hard assets become more desireable to investors skewing older with the baby boomer cohort. We are also losing skills in the tech sector. Five years ago every shop had a tech analyst and a banker and now there are only handful remaining to help investors stay on top of stocks.

Every now and then a Canadian tech stock will seem to come out of nowhere and trade a bunch. But are there sectors doing really well?

For the most part, we try to focus on software-oriented sectors where revenue streams are often recurring and margins are pretty high. We like mobile infrastructure and applications, software-as-a-service, platform-as-a-service, social and gaming platforms, payment systems, and content delivery.

Tell us about some of the companies presenting at the conference.

We have 13 company CEOs presenting from companies ranging in market cap from the mid-$700M range all the way down to $20M. We have two really exciting private companies presenting which one day could become IPO candidates. Canadian tech investors need more IPOs. With recent acquisitions, the small cap tech sector is shrinking and right now there are only about 130 tech stocks list on the TSX and TSXV. The “birth rate” for new technology is too low right now.

Can Cantech Letter readers attend the conference?

On Friday, we just ramped up the capacity for the conference to meet demand. As a result there is still room for Cantech Letter readers. Although they should RSVP quickly.

One last thing I want to say is this: We are passionate about the intellectual capabilities of Canadians.We think that our sustained competitive advantage in the world will come from our ability to create intellectual property and solve problems, which will ultimately be the source of a vast percentage of our wealth. We need to find ways to get our capital working more effectively to support these pursuits and we hope that the M Partners Technology & Communications Investor Conference contributes in even a small way to this cause.

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