With the dust settling on what was one of the worst years in TSX Venture history, a definable trend has emerged highlighting the continued shift to tech stocks on Canada’s small-cap exchange.
The TSX Venture shrunk by 9% year over year from November of 2014 to November of 2015. The exchange shed close to 180 issuers finishing November with 1,806 total issuers. Unsurprisingly the majority of delisted or suspended issuers hailed from the mining sector. Additionally, according to TMX Money, 12 issuers delisted from the TSX Venture in December, so we started 2016 with just 1,794 total issuers.
While the TSX Venture remains heavily weighted to the mining sector (60% of listed issuers) as of November 30th, 2015, the QMV or quoted market value of miners and oil and gas stocks declined significantly.
TSX Venture tech stocks increase liquidity and market share
TSX Venture tech stocks grabbed another 1% of the entire market place and now represent 7% of the exchange from 6% in 2014. While not overly significant, the increase in liquidity among tech stocks from 2014 to 2015 was. I will get into some of these numbers shortly.
Tech stocks and Financial Services sector boom in 2015
The mining sector saw its QMV (quoted market value) through to November 30th 2015 decline to 32% from 35% of the entire exchange in 2014. While the QMV for oil and gas stocks fell from 21% in 2014 to 15% on the TSX Venture in 2015. Ouch. This was to be expected, but a huge drop none the less. To clarify further, the valuations of all oil and gas stocks on the Venture fell from $5.975 billion in November of 2014 to just $3.4 billion at the end of November 2015.
Tech stocks on the TSX Venture fared quite well, stabilizing at 9% QMV of the entire exchange, unchanged from 2014. While tech stock valuations declined overall, falling from $2.50 billion at the end of November 2014 to $2.18 billion at the end of November 2015, this was in line with the Venture’s collapse and not bad when compared to the mining and oil and gas sectors.
The mining sector gave up over $2.5 billion in QMV year over year through to November 30th 2015.
Tech stocks capitalize on liquidity bump
Now, here is where things get very interesting for tech stocks on the TSX Venture in 2015. Total volume traded YTD for tech stocks last year through to November 30th 2014 was 2.9 billion shares. Through to November 30th 2015? A whopping 3.9 billion shares traded hands.
If oil continues to lag and the tech sector in Canada puts up another 2015 in 2016, tech stocks have the potential to overtake total liquidity vs. oil and gas stocks. Who would have thought that just a few years ago? This is Canada after all.
This trend is actually something we have been writing about for years at Pinnacle.
Below is an excerpt from an October 2014 article, titled Which Canadian Small-Caps are Fundable?
“In 2011, the tech sector, during the same period mentioned above, raised about $335 million, according to MiG’s reporting. Fast forward to 2014, during the same period, and MiG reports that tech companies have raised roughly $822 million. That’s a 140% increase in the amount of capital invested in tech companies (via private placements, IPOs etc.). And there were 12 more technology-based companies on the Venture in 2011 than in 2014…”
Click here to read more.
Almost two years ago to the day, on January 7th, 2014, we published an article titled POET Technologies: TSX Venture Tech Stock you haven’t heard of. POET had a market cap of roughly $75 million back then, but would increase to over $400 million in the months following and is still among the largest TSX Venture stocks by market cap on the exchange.
An even more telling article, published a few weeks following the POET piece (January of 2014) was titledVancouver Financiers Shifting TSX Venture to Technology Stocks. The write up summarized our sentiment towards the tech sector while many still clung to the hope commodity plays would rebound.
In our latest EBook we reveal 50 entrepreneurs and leaders who took small-cap stocks to stunning multimillion dollar buyouts. The companies these leaders run today are also described in this one of a kind rolodex of some of the top entrepreneurs and business minds, in the small-cap mining, tech and energy sectors, operating in North America’s small cap public markets.
Mining fades while tech stocks strengthen in 2015
There were 32 new go public events for mining issuers last year through to November 2014, compared to just 22 in the same period of 2015. The tech sector showed its resilience to the commodity bear market and the sell-off on TSX Venture history as 14 go public events occurred in 2014 through to November 30th and in 2015. Despite the Venture falling more than 25% in 2015, go public events stayed even at 14 for the tech sector. The Venture is demanding innovation and diversity and forking over the cash for it.
The oil and gas sector dropped from 11 go public events in 2014 to just 2 in 2015!
More capital finding TSX Venture Tech Stocks
Despite tech stocks representing only 7% of issuers on the TSX Venture exchange, only 3 sectors (excluding diversified industries) raised more capital in 2015 through to November 30th. The mining sector raised the most at just over $1 billion ($1.001 billion), followed by oil and gas at $493.7 million, Financial Services at $482.6 million and technology at $267.6 million.
When you combine the technology and life sciences sectors the total is $511.3 million – more than the entire oil and gas sector combined and more than half of what the entire mining sector financed in 2015 through to November 30th.
Note: The Life Sciences sector includes all the marijuana stocks that went on an epic run in 2015.
TSX Venture technology stocks shine in 2015
Technology stocks continue to punch above their weight class when it comes to raising capital as mining and oil and gas stocks represented 71% of issuers on the TSX Venture ending November 30th 2015. Again, in terms of funds raised, mining and oil and gas issuers accounted for less than 50% of financings, despite representing 71% of the issuers.
The financial services sector had the biggest increase, soaring from $190.5 million in 2014 through to November 30th, to $482.6 million in 2015 through to November 30th. The tech, financial services and life sciences sectors were three hot spots on the TSX Venture in 2015. Expect liquidity to continue to flow into tech stocks on the TSX Venture as the exchange works to diversify and investors seek out investment opportunities in this space.
Any and all statistics were taken from two MiG Reports produced in concert with TSX Inc.
Click here to read the November 30th 2014 report.
Click here to read the November 30th 2015 report.
This article represents solely the opinions of Alexander Smith. Alexander Smith is not an investment advisor and any reference to specific securities in the list referred to in the article does not constitute a recommendation thereof. Readers are encouraged to consult their investment advisors prior to making any investment decisions. The information in this article is of an impersonal nature and should not be construed as individualized advice or investment recommendations.