Are there bargains to be had in the tech sector?
“Yes, if you know where to look,” was the answer we got from Stableview Capital Partners’ Ron Shuttleworth recently.
Shuttleworth, who recently left the sell side to join Colin Fisher in a new hedge fund that will focus on technology, acknowledged that increased liquidity “has dramatically elevated the sector multiple”. But he says we’re only just now through the period of diminished expectations and into a real sector rotation. “Multiples are still below those prior to the recession and nowhere near where they were during the tech bubble,” he points out.
Shuttleworth thinks SMB, SME, Enterprise and SaaS will be dominant themes in 2014 and beyond. But which stocks should Canadians be looking at? We polled ten analysts from ten different Canadian investment banks with a simple question. What is your current favourite Canadian tech stock? Here are their choices, ranked by market cap.
1. Mitel (TSX:MNW)
Market Cap: 1.14-billion
April 1st Closing Price: $11.32
Ottawa’s Mitel struggled after returning home to list on the TSX, but shares of the company took flight in the latter half of 2013 and haven’t looked back. The massive acquisition of peer Aastra opens an opportunity for Mitel, which is a leader in virtualization, to take on-premise PBX systems into the cloud. “With this merger the combined annual revenue of Mitel exceeds $1-billion, which we believe creates the financial scale and operational leverage to drive shareholder value and profitable growth in an opportunity-rich consolidating market,” said CEO Rich McBee following the pickup’s completion. “We now have double the talent, tools and range of solutions to aggressively compete for a greater share of our market.”
2. Descartes Systems Group (TSX:DSG)
Market Cap: $983.5-million
April 1st Closing Price: $15.45
Waterloo’s Descartes hasn’t skipped a beat since the departure of its long time CEO Art Mesher. Early in March, Descartes reported its fourth quarter and fiscal 2014 results. For the year, the Waterloo-based company earned $9.6-million on revenue of $151.3-million, a topline that was up 19% over 2013. “Our strategy of focusing on recurring revenues, organic growth and complementary acquisitions continues to deliver consistent, predictable financial results,” new CEO Ed Ryan said.
3. Redknee (TSX:RKN)
Market Cap: $601.4-million
April 1st Closing Price: $5.53
There’s really two Redknees; the one before the acquisition of assets from Nokia Siemens Networks and the one after -that’s how transformative the pickup has been. But one analyst says Redknee is still undervalued relative to its peers based on fiscal 2015 earnings, large expansion from the NSN acquisition and strong opportunity to grow earnings based on price increases for maintenance fees. “Redknee looks to be emerging as the new go-to standard billing software for wireless telcos,” said the analyst.
4. Points International (TSX:PTS)
Market Cap: $449.3-million
April 1st Closing Price: $29.25
On March 7th, Points International reported its Q4 and fiscal 2012 results. For the year, the company earned $8.26-million on revenues of $139.5-million. For the quarter, Points reported revenue of $40.8-million, which was a 19% over the $32.9-million topline the company reported in Q4 of last year. But CEO Rob MacLean said 2012 was just a warmup to the company’s next fiscal year. ““Ultimately, our success in 2012 has set the foundation for accelerated growth in 2013, he said following the results. “Total 2013 revenues are forecasted to be in the range of $200-million to $220-million, an increase of approximately 50 per cent year over year.”
This Cantech Letter sponsor’s revenue grew from $200,000 last February to $9.12-million in March of 2014.
5. Solium Capital (TSX:SUM)
Market Cap: $316.4-million
April 1st Closing Price: $6.72-million
Calgary-based Solium Capital is one of the early tech success stories of the nascent sector rotation. The company, which was founded in 1999, helps companies sort through the regulatory tangle that is equity-based compensation. This type of remuneration, which 97% of companies offer their employees, is extremely complex because of changing regulatory environments, employee churn and localized rules. Until last year, Solium concentrated largely on the Canadian market, but has recently scaled up to capitalize on opportunities in the U.S. and U.K
6. FLYHT Aerospace Solutions (TSXV:FLY)
Market Cap: $107.3-million
April 1st Closing Price: $0.66
Shares of FLYHT have soared for the most melancholy of reasons. The loss of Malaysia Airlines Flight 370 on March 8th underscored the need for the Calgary-based company’s AFIRS (Advanced Flight Information Reporting System), a turnkey solution that allows for SMS and voice communications between the flight crew, air traffic control and ground staff. One analyst says FLYHT “…solves the universal burning need and a high stakes issue of tracking a commercial aircraft on a real time basis, anywhere on the planet, at any time. “At the rate of $55,000 per aircraft, he notes “all the 19,000+ commercial aircrafts in the world could have been fitted with at a price tag under $1-billion.”
7. D-Box Technologies (TSX:DBO)
Market Cap: $89.8-million
April 1st Closing Price: $0.55
Longueuil, Quebec based D-BOX was founded in 1992, and the two-decades since have seen the company perfect its motion-seat technology. D-BOX’s MFX systems use motion effects specifically programmed for a particular film, TV series or video game, which are then sent to a motion generating system integrated within either a platform or a seat. While the company as late as 2009 struggled to build a consistent revenue stream, things improved when management decided to dedicate itself to the commercial theatre market. Today, D-Box works on many of Hollywood’s biggest blockbusters. One analyst says D-Box is his pick because he believes “…there will be tremendous growth opportunities owing to the increasing adoption of 4D technology by movie exhibitors and the upcoming release of actuators for the industrial market which we believe can be larger, more profitable and with shorter sales cycle than the commercial exhibition industry.”
8. QHR Technologies (TSXV:QHR)
Market Cap: $67.2-million
April 1st Closing Price: $1.39
QHR’s Al Hildebrandt, with the help of a particularly decorated board, has guided Kelowna’s QHR to decade-long highs. The winner of Cantech Letter’s 2013 TSX Venture Exchange Tech Executive of the Year heads a company that is a leader in the Canadian Electronic Medical Records space and is now turning its gaze to international markets.
9. Espial Group (TSX:ESP)
Market Cap: $39.1-million
April 1st Closing Price: $1.98
After a surprise Q4 reported early in March, shares of Ottawa’s Espial Group have more than doubled. The only name on this list to be selected by two different analysts, Espial is winning business, says one, because its solutions “leverage open standards such as HTML5 and the RDK stack to enable Cable providers to improve their customer experience to prevent subscribers from “cutting the cord” and moving to “over-the-top” (OTT) services.