Up until the end of October, 29 companies have started trading on the TSX in 2021, having raised $8.1-billion, according to TSX data. That’s more activity than in any full calendar year going back a decade.Fred Lum/The Globe and Mail
For many of the tech companies that made debuts to great fanfare on Canadian exchanges since the pandemic began, the post-IPO hangover has been brutal.
Stocks whose initial public offerings were heavily oversubscribed as a result of ravenous investor appetite earlier in the year are now struggling to find shareholder support.
The biggest casualties of the 2021 class of tech newcomers have seen their share prices plunge by more than half from their highs of the year to date, with names such as Thinkific Labs Inc. , Farmers Edge Inc. and Magnet Forensics Inc. among the hardest hit.
The group’s sell-off has gained speed in recent weeks as investors globally have rotated out of technology stocks for fear of rising interest rates and inflation.
“We’re hopeful that there’s going to be a bounce-back for many of these companies,” said Ron Shuttleworth, a partner at Toronto-based Oak Hill Financial. “These stocks are definitely on sale going into the new year. The question is whether there will be enough buyers.”
Tech sector IPOs are booming in Canada. But their returns, on average, are pretty dismal
Can Canada’s red hot technology sector last?
Tech investors in Canada suddenly have much more to choose from – perhaps too much.
In the decade prior to the pandemic, the IPO market in Canada largely laid dormant. In 2019, there was a grand total of four new issues on the Toronto Stock Exchange.
That trend started to reverse last year, as surging pandemic-era stock markets raised the appeal of going public for earlier-stage companies, particularly in Canada’s burgeoning tech sector.
Up until the end of October, 29 companies have started trading on the TSX, having raised $8.1-billion, according to TSX data. That’s more activity than in any full calendar year going back a decade.
Legal software provider Dye & Durham Ltd. kicked off the tech IPO boom in July, 2020. Enthusiasm for the new listing pushed its share price up almost seven-fold by the end of last year.
A wave of new listings followed, including payments processor Nuvei Corp. , telemedicine startup MindBeacon Holdings Inc. and Telus Corp. spinout Telus International (Cda) Inc. , all to intense investor demand.
ATB Capital Markets analyst Martin Toner tracks 12 tech companies that completed their IPOs on the TSX this year, having raised $1.8-billion.
“We believe the space has been saturated by the high number of technology IPOs, with growth capital being spread thin across the various companies,” Mr. Toner wrote in a recent note.
“Several of these recent IPOs are fairly small, and more susceptible to selloffs given they do not have an established shareholder base nor do most of them have wide institutional support yet.”
Investor relations software provider Q4 Inc. , for example, has been trading for less than two months but its stock has already lost 30 per cent off its IPO price.
Several companies went public amid a global investor frenzy for tech stocks, which have generally driven market gains for much of the pandemic-era bull market. That trade, however, has lost some of its lustre as inflation has refused to fade as expected.
With persistent enough inflation, interest rates may have to be raised sooner than expected, which is bad news for high-growth, high-valuation tech stocks.
Over the past six weeks, the global inflation story has squeezed trading multiples on everything from the mighty U.S. IT and internet names to small-cap Canadian tech. The selling pressure has been exacerbated by tax-loss selling season, in which many investors unload poor performers as a tax manoeuvre.
It’s disappointing to see so little public-market support for Canada’s younger tech names, Mr. Shuttleworth said.
“Two or three years ago, everyone in the capital markets complained that there weren’t any deals, nobody’s going public. Now we have all these IPOs, and investors have abandoned them.”
Companies that are executing well and have positive analyst coverage are among the casualties, Mr. Shuttleworth said, naming Think Research Corp. , BBTV Holdings Inc. and Xybion Digital Inc. as top picks.
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Tim Shufelt