StableView Asset Management President and Portfolio Manager Colin Fisher was on BNN this morning, talking up the value of investing in Canada’s “under-loved and under-represented” technology sector.
The StableView TECH15 conference last October featured presentations from Wattpad’s CEO Allan Lau, along with representatives of companies like D-Wave Systems, AcuityAds, VersaPay and IOU Financial, to an excited room of demonstrably excited Bay Street Investors.
And while gold, silver and energy sector investors are being rewarded right now (after watching commodity values collapse and then slowly recover over the past 18 months), those patient tech sector investors are the ones who have been posting big returns in their much less discussed corner of the economy.
Noting that Fisher manages a fund “that has not invested a penny in either sector,” BNN anchor Frances Horodelski rattles off StableView’s numbers, demanding in a shocked tone, “Is that right?” when pointing out that StableView has managed to post 43% year-to-date and 22% returns since the fund’s inception in October 2014.
“What did you do, without those materials and energy stocks?” asks Horodelski.
“I’ve never been a second derivative investor, so I don’t buy a commodity that can wag the company, basically, where the product will wag the value of the company,” replies Fisher. “We’re almost exclusively invested in technology and knowledge-based companies. We think that it’s an under-loved and under-represented area in Canada, in particular. We have world-beating technology, it’s just that the capital markets don’t seem to necessarily understand it all that well.”
StableView’s holdings consist of investments in 11 publicly traded companies, three privately held companies, some options, warrants and private rights, as well as some private debt.
“The reason why tech is such a small part of the TSXV and the TSX is because we don’t see them. They get taken away from us on a perpetual basis.” – StableView President and Portfolio Manager Colin Fisher
We have seen Fisher on this breakfast show before, saying over a year ago that the Canadian investment community is set to pivot en masse and suddenly discover the tech sector, and then again three months ago bemoaning that the Canadian economy as a whole was too dependent on the oil and gas sector.
Horodelski gamely tries her luck again, saying to Fisher, “When we talk about technology in Canada, and we’ve had this discussion before, it has not been supported for a variety of reasons. But is it changing? Do you feel it’s changing, is that shift happening?”
Fisher replies using VersaPay as an example. “It’s a world-beating technology. It literally goes up against other world-class companies, and it wins time after time. Excellent CEO, excellent chairman. The former CEO of Descartes is the Chairman of the Board of VersaPay. It struggles to raise $4 million.”
Noting VersaPay’s competitiveness with much larger U.S. companies, Fisher says, “Billtrust.com is a $600 million-plus company on its last raise. VersaPay is a $20 million company. It has an old legacy business that is worth at least $10 million. So you’re buying a company that’s going up against this $600 million company and beating them, not infrequently.”
Warming to his theme, Fisher makes the case for investors putting aside their blind spots when it comes to Canada’s historical over-reliance on the oil & gas sector.
“We whine that we have this economy, when it goes firing into the hole, because we’ve been completely dependent on commodities, yet we have these world-class companies,” says Fisher. “For the record, BNN focuses primarily on the public markets, but what you’re not seeing is the carnage of all of the companies being sucked down to the Valley. Because these large funds come up to Canada. They make a flight every week, up to Canada, to go and buy companies. They just cherry-pick them, and we don’t see them. And the reason why tech is such a small part of the TSXV and the TSX is because we don’t see them. They get taken away from us on a perpetual basis.”
Seeming to enjoy the necessary anger interrupting the usually calm proceedings of mid-morning business television, Horodelski eggs Fisher on.
“I’m mental enough as it is, but it makes me really mental to see this continued drain,” he says. “Some people have talked about the brain drain in Canada. It’s not because our Canadian dollar is weak and it costs us more. It’s because the purchasing power of companies down in the States now, they can come in and take their U.S. investing dollars and buy the companies outright.”
“We whine that we have this economy, when it goes firing into the hole, because we’ve been completely dependent on commodities, yet we have these world-class companies.” – Colin Fisher
But Horodelski is quick to rightly point out that Canada’s “brain drain” isn’t entirely one-sided, which has seen many large American companies opening significant regional offices, such as Amazon Web Service’s recent Montreal data centre, not to mention the acquisition of Canadian small- and medium-size enterprises who are allowed to continue their work largely intact, such as with Intel’s acquisition of Vancouver’s Recon Instruments or the OPIS purchase of Regina’s GasBuddy.
“We need an ecosystem that supports Canadian-based guys,” says Fisher. “It’s very strange. Some of our private companies are bigger than our public companies from time to time, because of some of the inefficiencies that happen in the Canadian market are actually on the smaller-cap names.”
Fisher mentions PlentyOfFish creator Markus Frind, who famously built an online dating empire from his Vancouver apartment before ultimately getting bought out for $575 million U.S.
In his afterlife as an investor, Frind has bought in to Vancouver success story Cymax, a company that Fisher otherwise suggests “would have been gone and picked up by the States.”
Asked about the apparent lack of “unicorn” companies in Canada, Fisher not only mentions investors’ blind spots, but hands them a pair of glasses to see with in the bargain.
“It makes me crazy, these unicorns,” he says. “The thing is that the valuations are hallucinations in Technicolor. They’ve been levered to the nines. And the truth of the matter is, a lot of these structures that are ‘equity’ and they’ve been valued at X price, which is over $1 billion, it’s not real. If you look at the liquidation rights, these things are bonds. They’re debt in everything but name, right? So they’ve been basically leveraged to the nines. They have liquidation rights, liquidation preferences, all these other things, which are essentially debt-like structures layered on top.”
Unicorns aside, there are, as Fisher points out, plenty of companies worth investing in, such as Thornhill, Ontario’s Gaming Nation (TSXV: FAN).
“It’s trading at 0.7x EV/EBITDA right now,” says Fisher. “Think about that. We have things trading at 0.7x EV/EBITDA. It’s got an enterprise value of $4 million, and its revenues projected for this year, without even breaking a sweat, are over $5 million.”
Watch the entire interview here.