Will 2012 be the year Canadian tech stocks roar back? If so, Bay Street is simply going to have to get going on more tech IPO’s just to replace the companies we lost last year.
In 2011 the story of the year in Canadian tech, if there was one, was the takeouts of many interesting Canadian concerns, from Zarlink (TSX:ZL) to Bridgewater (TSX:BWC) to March Networks (TSX:MN) to 2011 Canadian Tech Stock of the Year MOSAID (TSX:MSD) which, on December 19th, accepted a $590-million buyout from Chicago-based private equity firm Sterling Partners. The second half of 2011 saw the relatively high profile IPO’s of NexJ Systems (TSX:NXJ), Ecosynthetix (TSX:ECO) and Avigilon (TSX:AVO),whom shareholders hope will soon join this list of Canadian tech stocks currently trading at 52 week highs.
1. Constellation Software (TSX:CSU) $83.55
In these defensive times, investors like to get paid to wait. Last week, Toronto’s Constellation Software (TSX:CSU) announced it had adopted a policy to pay a regular dividend, in an amount to be determined by the board of directors. The company declared an initial quarterly cash dividend of $1 (U.S.) per share payable on April 2, 2012, to all common shareholders and Class A non-voting shareholders of record at the close of business on March 12, 2012. Versant Partners Tom Liston liked move enough to raise his target price on the stock from $92 from $82. And, for those who think this may signal a new era of conservatism for Constellation, Liston doubts whether the move will slow its torrid rate of acquisition. He points out that the company has a $160 million revolving credit facility, as well as the ability to increase free cash flow to well over $100 million a year.
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2. SXC Health (TSX:SXC) $65.75
SXC Health’s (TSX:SXC) meteoric rise, accomplished primarily through acquisition, has been nothing short of remarkable. The company, which was founded in Milton Ontario, has grown from revenues of $33 million in 2004 to just under $2 billion in fiscal 2010. 2010′s performance earned SXC Health CEO Mark Thierer Cantech Letter’s 2010 Canadian Technology Executive of the Year Award. In 2011, he just missed out on a repeat. SXC Health, alongside US based companies such as Medco and Caremark, is a leader in the Pharmacy Benefit Management (PBM) space. PBM’s process and pay prescription drug claims and act as an intermediary between the health care systems and the claimant. The space has grown rapidly; today more than more than 210 million Americans nationwide receive drug benefits administered by PBMs.
3. RuggedCom (TSX:RCM) $24.95
When the offer came, it came seemingly out of nowhere. Shares of RuggedCom (TSX:RCM), which had been struggling since the middle part of 2011, leapt 62%, from $13.61 to $22.69 on December 19th, when St. Louis-based Belden (NYSE:BDC), a manufacturer of signal transmission and networking products used in demanding environments, made a $22 all cash offer for the Vaughn, Ontario base company. In raising his target price on the company to $30, Byron Capital’s Tom Astle said he now believes a full value bid is now possible on RuggedCom, which he thinks could mean as much as $38 a share. Astle reasons that RuggedCom has been growing revenue at about 30%, has high gross margins of nearly 60% and is dominant in the electrical utility networking, and is also a key player in grid modernizations. “This is a rare property and should be valued accordingly.” he said.
4. Softchoice (TSX:SO) $10.50
Toronto IT solutions provider Softchoice has, historically, derived about a third of its revenue from licensing Microsoft products. New evidence suggest that is an increasingly good place to be. A study conducted by the company showed the installations of the Windows 7 operating system in corporate environments has nearly tripled since the start of 2011. While Softchoice revenue leapt from $754 million in 2009 to $884 in 2010, the company was actually less profitable,. In 2011 the company decided to concentrate on higher margin projects. In its recently reported Q3, gross profit was up nearly 14%.
5. Medworxx Solutions (TSXV:MWX) $.34
Toronto’s Medworxx, a provider of software solutions for North American hospitals, is still small, but is gaining traction. The company’s utilization management system currently serves twenty-five per cent of the hospital beds in Canada. Medworxx recently signed a deal with Vancouver Coastal Health to provide evidence-based clinical admission and discharge criteria across two hospitals, Lions Gate Hospital and Richmond Hospital. Medworxx flip-flops between profitable and unprofitable quarters, but revenue is growing, to $3.55 million for the the nine months ended Sept. 30, 2011.