M Partners: 2012 Should End Well For Canadian Tech Stocks

Zynga, of course, followed the high-profile IPO’s of Linkedin (NASD:LNKD), Groupon (NASD:GRPN), Pandora (NASD:P) and, presumably, preceded the mother of all modern tech IPO’s, Facebook. Many analysts expect Facebook will go public sometime in 2012.

But that was the US. In Canada, things were distinctly different. Mining and metals stocks had a year to forget, but it wasn’t because tech was stealing its thunder. It was because most everyone had a bad year. The TSX began the year at 13,443 and, at press time, had lost nearly two thousand points to trade at 11,617.

If there was a storyline for Canadian tech stocks in 2011 it was buyouts. Bridgewater Systems (TSX:BWC), MOSAID (TSX:MSD), Zarlink (TSX:ZL), and March Networks (TSX:MN) were all taken over by larger US-based firms, some at what many were considered less than stellar premiums. Combined, these companies represent approximately $1.4B of shareholder value. And Some potential TSX hopefuls, like Toronto’s Rypple, were snatched up before they could even list. This past week, Rypple was acquired by Salesforce.com.

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But M Partner’s Ron Shuttleworth says there is hope for Canadian tech in 2012.

M Partners, which maintains an index of tech stocks called the The RES 30 index, notes this benchmark index grew revenues by 16.6% and delivered nearly $800M of new revenue over the last twelve months.

In a report published this week called Small Cap Tech Year in Review, M Partners Ron Shuttleworth says several macro technology themes that dominated the headlines recently will continue into 2012, and many Canadian techs stand to benefit greatly. Shuttleworth says, for instance, that mobile broadband trends (global networks are at various stages of deploying 4G LTE network upgrades during 2012) will benefit Waterloo’s Sandvine (TSX:SVC). Shuttleworth is watching Transgaming (TSXV:TNG) closely because he believes the long anticipated convergence of the living room is finally upon us. Shuttleworth’s top pick is Descartes Systems Group (TSX:DSG), which he says will benefit from enterprise trends such as transaction licensing models that are enabled by cloud-based infrastructure.

But Shuttleworth says there are caveats to his optimism. A partial or complete collapse of the Euro-zone could send the entire world into an economic depression, he warns. And, he says, the fragile recovery of the United States economy could be derailed without meaningful tax reform and budget prioritization.

Shuttleworth says that, far from being an abstract idea, macro concerns are already weighing on the valuations of some small Canadian tech stocks. International Datacasting (TSX:IDC) VIQ Solutions (TSXV:VQS) and Vendtek Systems (TSXV:VSI) are all executing towards significant catalysts, he believes, but each of their catalyst paths have slowed due to capital expenditure delays related to the Euro debt crisis.

Ron Shuttleworth has made the full report available on his blog RES Free Thinking.

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