For years, we have been hoping for, if not predicting, a resurgence of technology in the Canadian public markets. In 2012, we had that wish fulfilled, at least in part. The technology sector was the top performer of all sectors on the Toronto Stock Exchange.
The story of 2012, at least for the first half of the year, was the continuation of the longer M&A trend that saw some of our most promising companies snatched up by mostly U.S.-based equity firms and companies. The second half of the year, however, saw a distinct reversal of this trend, with companies such as DHX Media, Patheon, Redknee, CGI Group and Macdonald Dettwiler boldly acquiring assets abroad.
With recent IPO Avigilon (TSX:AVO) already a major success, and thousands of new private technology companies waiting in the wings, we anticipate a real revival to continue in 2013, with new IPOs to provide the necessary energy. Those upstarts will be looking to replicate the performance of the list below, because Canada’s current most profitable tech stocks have also been some of the best performers on the exchange as a whole. We surveyed all companies in TSX Technology Sector, and list them in order according to their trailing four quarters EPS.
1. Constellation Software (TSX:CSU)
Trailing four EPS: $3.49
Toronto-based Constellation was formed by current CEO Mark Leonard, who left the world of venture capital in 1995 to form the company, which has since become one of Canada’s most successful. Constellation, which makes software for the public and private sector, grows through acquisition, looking to acquire best of breed companies across different verticals. Constellation is involved in various niches on the public and private side from software for housing authorities, transportation agencies, and software for large home builders. Constellation, which has acquired nearly two-dozen companies since the beginning of 2011, has grown its revenue from just $243 million in fiscal 2007 to more than $773-million in 2011. Cantor Fitzgerald analyst Tom Liston says Constellation’s management is among the very best allocators of capital in the technology sector.
2. Macdonald Dettwiler (TSX:MDA)
Trailing four quarters EPS: $3.22
On June 27th of last year, Macdonald Dettwiler announced it would pay (US) $875-million plus cash dividends and other payments from Space Systems/Loral, which the company expected to be in excess of (US) $135-million. Dan Friedmann, MDA’s president and CEO said the transaction, which essentially doubled the size of his company, was “game changing”. The Richmond, BC company, which was formed in 1969, was a pairing of the efforts of John MacDonald and Werner Dettwiler. Since then, MDA has been a part of the fabric of Canadian technology. The aerospace giant’s contribution to the Canadarm, a robotic space arm developed in the 1970′s to repair and service NASA space shuttles, is iconic. But the company has since been forced on the rocky road of reinvention. MDA’s very recent activities will be more familiar for those who had followed the company in its halcyon days. The company is the prime contractor for a spectrometer geology instrument called APXS, which allows NASA’s Curiosity rover to calculate the chemical composition of the rocks and soil on Mars. In a research update to clients recently, Industrial Alliance analyst Al Nagaraj reiterated his Buy rating and a $75 price target on Macdonald Dettwiler.
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3. Open Text (TSX:OTC)
Trailing four quarters EPS: $2.15
Open Text, which last year joined Waterloo peer Research in Motion in surpassing a billion dollars in revenue, has managed to remain profitable. The company, which sells software that enables companies to manage their content, has various product offerings that exist under a parade of acronyms that relate to the way companies use their content to collaborate and engage clients and meet regulatory requirements. These include Enterprise Content Management (ECM), Enterprise Information Management (EIM), Customer Experience Management (CEM) and Business Process Management (BPM). Open Text now has more than 5000 employees in 31 countries. In November, Cormark analyst Richard Tse explained why Open Text is his current top pick.
4. Calian Technologies (TSX:CTY)
Trailing four quarters EPS: $1.82
Calian, whose roots go back to 1982, when it was a small consulting firm now employs nearly 2500 people in offices across Canada. The company, which sells technology solutions to governments has grown slowly, but is consistently profitable. In it’s Q1 2013, reported early in February, Calian saw revenue grow 2%, to $57.9 million, while its earnings were down slightly from the same period in 2012.
5. Aastra Technologies (TSX:AAH)
Trailing four quarters EPS: $1.67
Concord, Ontario based Aastra, which markets a range of telephony solutions for large businesses, has a surprisingly exciting stock chart for a business that seems inherently low beta. The company hit a high of more than $36 in 2010 before retreating to under $14 in 2011 on European exposure concerns. Most of 2012 was stable for Aastra, which is consistently profitable and routinely delivers its success back to shareholders in the form of share buybacks and ever-increasing dividends.
6. Softchoice (TSX:SO)
Trailing four quarters EPS:$1.32
Softchoice, which was founded in 1989, boasts more than 14,000 small and medium-sized business, enterprise and public sector customers across Canada and the United States. CEO David MacDonald, who joined the company in 2001 after an eighteen year career at Xerox, helped transform the company from a software direct marketer to one of North America’s largest providers of technology solutions and services. Softchoice’s recent Q4 revealed revenue that was up 15% to (US) $308.7-million, and its net income rose to (US) $8.4-million, up from $6.5-million for the same period a year earlier. Late in February, Industrial Alliance analyst Al Nagaraj maintained his BUY recommendation and increased his price target on the company’s stock to $19, up $3.50 from his previous target of $15.50.
7. Davis and Henderson (TSX:DH)
Trailing four quarters EPS: $1.17
Toronto-based Davis and Henderson, whose history goes all the way back to 1875 has been slowly transitioning itself out its legacy business of supplying cheques to Canadian banks, and into technology solutions and business services to customers in the financial services industry. The company, which was an income trust until January 1st, 2011, continues to distribute cash to investors in dividend form.
8. Evertz Technologies (TSX:ET)
Trailing four quarters EPS: $.95
Dieter Evertz founded his eponymous 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 remains as one of the last public companies standing from a once robust Canadian broadcasting technology sector. The company’s fiscal 2012 revenue of $293.4-million came from a product line that 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. In the company’s recent Q2, it posted revenue of $83.2 million, which was an increase of 18% year over the same period the year prior.
9. Mediagrif (TSX:MDF)
Trailing four quarters EPS:$.94
Founded in 1996, Longueuil, Quebec-based Mediagrif offers a range of e-commerce services through B2B platforms such as The Broker Forum, Power Source Online, and Carrus Technologies. The company became increasingly profitable as it grew its revenue from $47.9-million in 2009 to $53.8-million in 2012. In its recent Q3, Mediagrif earned $3.47-million on revenue of $15.1-million. In February, Cormark analyst Richard Tse downgraded Mediagrif from Market Perform to Reduce, but maintained his price target of $18.
10. Mitel Networks (TSX:MNW)
Trailing four quarters EPS $.94
In April of 2010, Mitel went public for the second time. The company listed on the Nasdaq at $14 a share, but the IPO was not a success. In January of 2011, Mitel brought in industry veteran Rich McBee from Danaher to right the ship. McBee now presides over a new Mitel with increasing revenue, record gross margins and an growing sweet spot in moving small and medium sized businesses to the cloud. Shares of Mitel, which bottomed to near the $2 mark last fall, have more than doubled in the time since. In December, M Partners analyst Ron Shuttleworth reiterated his BUY recommendation on Mitel and increased his 12-month share price target to $5 from $4.50.