The TSX luxury part 2

This is a follow-on to our first post regarding what a luxury Canadian companies have in the TSX (see “The TSX luxury“, May 22-07). This installment touches on the some of the compelling moves made by TSX Venture-listed firms as a whole between 2005 and 2006.

First the “bad” news, or at least disappointing from where I stand: the median market cap of the 2,080 TSXV listed firms was $8.2 million in 2006. This is far too small a market cap as it implies a series of real challenges at these individual firms: small revenue, no profits or even positive EBITDA, no research coverage, no institutional shareholders, all of which equates to “orphan” status. The average market cap was $26 million, but the median figure makes it clear: the are over 1,000 public companies in Canada with a market cap sub $8 million.

Unless their enterprise value is substantially higher than that, say $20 million, they probably shouldn’t be public. Certainly the 500+ that are below $2 million shouldn’t be public, despite the fees they are generating for TSX shareholders.

As an aside, the situation doesn’t improve much on the TSX itself, as the median market cap of those 1,598 firms was $139.6 million, which is probably “micro small cap” land, even in Canada.

The TSXV is still a BC-based exchange, with 922 of the 2.080 firms based in Vancouver and environs. By contrast, only 9% of the listings are from Quebec and just 1% from Atlantic Canada. And, given the resource nature of the exchange it will surprise no one that Alberta and Ontario are each home to about 400 firms, despite the huge difference in population base.

But here are some of the real glimmers of hope for the TSXV, and the Canadian economy as a whole:

– $7.9 billion was raised in financing in 2006 (up from $6 billion in 2005), despite the average deal size being just $3 million;
– 67 firms graduated to the TSX (about 3%);
– the aggregate market cap of the TSXV grew 65% from $33.3 billion to $54.9 billion between 2005 and 2006 (with only 281 additions to the exchange, that’s a lot of organic market cap growth…even after you take the $7.9 billion in equity capital that was raised via financings);
– the median market cap grew 71% from $4.8 million to the aforementioned $8.2 million;
– and the average market cap. grew 60% from $16.5 million to $26.4 million;
– average daily trading volume increased 76% in 2006, and the number of daily trades increased 88%;
– 61% of all money raised on the TSXV was for mining firms (despite representing only 47% of all listings), with oil and gas second at 21%, tech represented just 5% and biotech merely 2%;

Clearly, the ongoing success of the resource sector comes through in these figures. But if only 23 of the TSXV’s 281 new 2006 listings were of a tech or biotech, there is not much evidence that Canada has moved any closer to being a “knowledge” economy, despite the billions of VC and government funds that have gone into these two sectors over the past couple of years.

MRM