The TSX luxury

This is the first part in a series about the TSX, and is designed to cover a multitude of the topics that you’ve read about here (“The Insatiable TSX“, March 21-07) and in the dead tree media of late. I had the pleasure of a lunch with a couple of the young stars that work with the exchange, and got updated on many of the metrics that are most relevant to Canadian firms.

Today I’ll address an old saw: equity research coverage.

Back when I was an investment banker, one of the key things we’d try to impress on a company’s management team if they were thinking (dreaming perhaps) about going to the NASDAQ for their IPO was the luxury of being a biggish fish in a small pond (the Canadian public market). And even for cross-listed firms, there was no doubt that even the huge firms benefit from continuing their Canadian stock listing.

Let’s have a look at the average market cap. of some of the world’s largest exchanges (from World Federation of Exchanges data compiled Dec. 31-06; in US$millions; ranked by aggregate market cap. of all firms listed on the entire exchange):

Avg. Market Cap.:

NYSE 6,760
NASDAQ 1,233
London 1,165
Euronext 3,065
TSX 443
Australia 599
Italy 3,300
Shanghai 1,090
Amex 478

This list gives you a sense of 1) just how many firms are listed on the TSX and 2) how small our average market caps are as compared to other listed companies around the world.

Once a firm is public, one of the key concerns and challenges is gaining independent research coverage. The stats are still as compelling as ever, and a great place to start when thinking about the “Canadian Advantage” (that phrase from the recent Federal Budget).

Using Life Science firms as a sample, the research analyst figures are astounding.

As a group, across every market cap., each TSX-listed Life Science firm had an average of five research analysts as compared to one for AIM-listed firms. That number is a bit skewed by some of the C$500MM+ market cap. firms, but even the $50MM-$500MM range is stark.

$50-$100MM market cap.: TSX – 2.3, AIM – 1.2
$100-$250MM market cap.: TSX – 5.4, AIM – 1.9
$250-$500MM market cap.: TSX – 7.7, AIM- 4.6

If one of the reasons why you took your firm public was to get research coverage and build a retail or institutional following, you’ll find that awfully difficult to do without meaningful research coverage. And, according to these June 2006 stats, the TSX is still as over-investment banked as it ever was in the small cap world. And that’s a great luxury for both the issuers and the TSX.

MRM