For Subscribers

Get the complete article now!

Four analysts and top management from twenty sector firms examine the investing in Canada sector in this special 129-page Investing in Canada issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info490.htm.

TWST: You had also mentioned Open Text (Nasdaq:OTEX) and Hummingbird (Nasdaq:HUMC). Would you explain why?

Mr. Bradley: Broadly speaking, they’re actually competitors. Hummingbird has two business streams. It has what it would call a legacy, connectivity software business, which is emulation software that runs on PCs and connects system users to mainframes, Unix boxes and others. A more recent business they’ve entered is EIP, enterprise information portals, a way of accessing applications and data throughout an organization. EIP is seen as the growth aspect of the company. Hummingbird has made some acquisitions to get into the business, and it seems to have fairly rapidly sewn these together so that there’s a coherent product offering. The solution is being taken to market, and corporate customers seem to like what they see. I’m not convinced that Hummingbird has the mind share that some of its competitors has. Plumtree, for example, a smaller company, seems to have a much greater level of mind share than Hummingbird does; nevertheless, Hummingbird is competing successfully in that market.

TWST: Are there any stocks that you would advise investors to avoid?

Mr. Bradley: Avoid? Well, let’s put it this way. Over the last year there has been a polarization of the stocks on the Canadian software scene. There’s been a flight to quality, so it’s clear that investors have shifted their attention toward the larger cap, more liquid stocks with more experienced management teams, larger customer bases, and they have shunned the early-stage small and micro-cap stocks. I think you can probably see that the place to avoid at the moment is the small cap end of the market. Some interesting technologies will undoubtedly emerge from the small cap segment, as well as some of tomorrow’s great companies. But I think at the moment, the small caps suffer from illiquidity and volatility. Many of these companies’ stocks move around on news releases that may have only marginal impact on the overall success of the company. Therefore, you’re not really getting the benefits from the performance of the underlying business. It’s just too event-driven. So my view would be: stay away from the small cap end of the market; you should definitely be looking at the larger, better-capitalized stocks. By and large, that capitalization reflects the fact that they’re more mature businesses, but with strong growth prospects.

TWST: How would you advise investors to approach the group?

Mr. Bradley: I would suggest that you want to do exactly what I’ve said: look at the large cap segment of it; understand that there are still high-growth opportunities there, IT services being one, with companies like Cognos, Open Text, Hummingbird and Geac (which is different from the others, a far more diverse software company selling products into many different market sectors). These are the companies that should attract investor interest.

TWST: Is there a final message you would leave investors with, looking both at Canadian software and at the Canadian market as a whole?

Mr. Bradley: Yes. I would suggest that over the longer term Canadian software companies typically trade at lower multiples than their US equivalents. There is an opportunity — I hesitate to call it an arbitrage opportunity — to invest in companies while they’re still listed on the TSE in the expectation that they will ultimately be listed on the NADSAQ. It’s more or less the ambition of every Canadian software company to get listed on NASDAQ, and typically, when they move from the TSE to NASDAQ, you see those valuation multiples climb quite significantly, and that’s an added bit of return that an investor can expect out of a company.

This special issue includes:

1) Investing in Cananda - In an in-depth (4,700 words) Analyst Interview, Nick Majendie, Director and Senior Vice President of Canaccord Capital Corporation, examines the outlook for the sector and shares specific stock recommendations.

2) Canadian Telecommunications - In an in-depth (3,700 words) Analyst Interview, Peter Rhamey, Managing Director at BMO Nesbitt Burns, Inc., examines the outlook for the sector and shares specific stock recommendations.

3) Canadian Software & IT Services - In an in-depth (4,200 words) Analyst Interview, Paul Bradley, Technology-Software Analyst at Canaccord Capital Corporation, examines the outlook for the sector and shares specific stock recommendations.

4) Canadian Asset Management - In an in-depth (3,800 words) Analyst Interview, Bruce Brewington, Vice President at Putnam Lovell, examines the outlook for the sector and shares specific stock recommendations.

5) CEO interviews (average 2,500 words). Top management of twenty sector firms examine the outlook for their firm and the sector.