From the sat edition of vancouver sun
Last Updated: Saturday 11 December 1999
LOCAL BUSINESS
Canadian Net stocks coming into their own
Yorkton Securities analyst has a top-10 roster of e-commerce
outfits that are part of a critical mass building in this country.
Barbara Aarsteinsen Vancouver Sun
A year ago, Mark Pavan would have been hard-pressed to recommend
more than a handful of Canadian Internet stocks.
But as the world of electronic commerce continues to pick up steam on the
homefront, the Yorkton Securities Inc. analyst now has no problem coming
up with a top-10 roster.
And although he figures Canada is still about 18 months behind the United
States, he expects that by this time next year the task will get even easier.
"Five of the companies on my list never even existed a year ago," said
Pavan, who was visiting Vancouver from Toronto this week, out to warm
investors up to Internet prospects.
"A year ago, there were only about 10 legitimate stories in the country to
even look at, but this year, I considered a field of maybe 20 and next year,
I expect to be looking at 50.
"There are dozens of leaders in this country in other technology sectors,
but this space is just starting to emerge," he said. "Real critical mass is now
beginning to build in Canada. This is the infancy of a huge trend."
Pavan isn't fazed by talk about excessive valuations and fears that the
sector is a bubble just waiting to burst.
The fastest-growing medium in history, a revolutionary influence being felt
in virtually every sector, the Internet may change and evolve, but it's here
to stay, he said. The trick is to weed out the winners and losers in the
metamorphic process.
Along with that, he said, investors should diversify their Net holdings just
as they ideally broaden the rest of their portfolio -- for every dollar
invested in a more speculative venture, they've got a couple of dollars put
in safer bets.
"Certain aspects will come in and out of favour, but this is more than a
lifestyle phenomenon -- it's a capital market phenomenon," he said.
"There's a bit of a self-fulfilling prophecy here -- the more money you
throw at it, of course it's going to grow."
While consumer commerce has driven much of the Net's development,
Pavan believes the real future potential, however, lies in in
business-to-business commerce and the companies that provide the
infrastructure to facilitate that traffic.
"I think the business market will be a hundred times the size of the retail
market," he predicted. "Consumers pushed businesses to react, but now
companies are learning that they can do things cheaper and faster.
"They've found an unrivaled way to gets tasks accomplished."
Pavan's favourite picks, in alphabetical and no preferred order, include:
BCE Emergis Inc., Book4golf.com Corp., Burntsand Inc., Certicom
Corp., Chapters Online Inc., Cybersurf Corp., EcomPark Inc.,
SLMsoft.com Inc., Versus Technology Inc. and Xenos Group Inc.
He said most of the group have advanced 25 per cent during the past
week alone, and most are up more than 100 per cent on the year.
- Montreal-based BCE Emergis, a unit of BCE Inc., provides payment
systems and other e-commerce products and services.
The company, formerly known as Mpact Immedia Corp., was created last
year after BCE acquired its controlling stake.
"BCE Emergis handles all the back-end stuff," Pavan said. "It's probably
handled hundreds of transactions for many Canadians -- it's No. 1 in what
it does -- but most have probably never even heard of it."
- Thornhill, Ont.-based Book4Golf.com offers an Internet-based tee-time
reservation system for the golf industry.
Pavan said he's particularly impressed that the company recently agreed to
offer its service through Sabre Holdings Corp., the leading
travel-reservation company.
"It's not enough any more for startups to say, 'Build and they will come,' "
he said.
"The Net has become like TV with 10 million channels. There has to be
some captivating reason to believe that traffic will build and what we look
for in a lot of cases are strategic partnerships and alliances."
Pavan also noted that Book4Golf.com, like Cybersurf and EcomPark, is
one of several promising Internet companies that got a start on the Alberta
Stock Exchange and which he thinks will fare even better with the recent
launch of the Canadian Venture Exchange.
The CDNX -- now the main market for small-capitalization issues in
Canada -- will provide a "legitimizing influence," he suggested.
- Burntsand Inc. of Vancouver provides IT solutions and services,
specializing in the application of Internet technologies to business
processes.
Pavan describes the company as a "still relatively undiscovered gem."
- Toronto-based Certicom provides cryptographic technologies.
Security is seen as key to electronic commerce transactions and Certicom
has a range of solutions that have been incorporated into the software,
wireless messaging applications and smart cards of a number of major
computing and communications companies.
- Toronto-based Chapters Online, a spinoff of traditional retailer Chapters,
sells books, music and software on the Internet.
Pavan is a big fan of this company for several reasons. In particular, he
likes the marketing boost it gets from the brick-and-mortar Chapters
operations, he's reassured by the fact that it's in a market sector protected
from foreign competition, and he's impressed by the management team.
- Calgary-based Cybersurf develops and markets software and
connectivity solutions and tools.
It operates the first free Internet access provider in Canada, 3Web, which
started up less than a year ago in Alberta and is now being launched in
Toronto.
For its Toronto debut, Pavan pointed out, Cybersurf has hooked up with
the Global Television Network and the Globe and Mail.
- Concord, Ont.-based Ecompark is a web services development
company and Internet incubator. It provides venture capital, creative
resources and technical expertise to Internet and digital companies.
For instance, Ecom.Park has a stake in such startups as Petopia.com (a
San Francisco-based online pet supply and advice site founded by Andrea
Reisman, the daughter of Heather Reisman, chief executive of Indigo
Books and Music Inc.); SamsCD.com (Sam the Record Man's fledgling
online division); Healthscreen.com Inc., an online billing service for
doctors, and Zconnexx Inc. a portal site for companies looking to establish
an Internet presence.
- Toronto-based SLMsoft.
com is a leading global provider of electronic financial transaction solutions.
Pavan said it's caught his attention because of its large market opportunity
and its proven technology.
The analyst said he's also impressed by SLMsoft.com's recently-enhanced
corporate disclosure. And he pointed out that it's considering a plan to
issue about $30-million in preferred shares through a private placement.
Part of the proceeds of that deal would be used to advance the marketing
and full rollout of the company's e-commerce network and go toward
building a brand name in the U.S.
- Versus Technology Inc. provides electronic trading services, operating in
Canada under the E-TRADE banner.
But the Toronto-based company also offers a proprietary electronic
crossing service called LYNXX, Pavan pointed out, which adds to its
growth potential.
- Toronto-based Xenos Group Inc. designs and markets software for the
electronic document presentment industry and Pavan ranks it as a leader in
its field.
He said the company gives customers the ability to convert any
high-volume printed paper documents to any electronic format on any
platform.
Not surprisingly, Bid.Com International Inc. doesn't make Pavan's list.
The analyst, one of the few in Canada who focuses on e-commerce
stocks, made headlines earlier this year when he released a negative report
on Bid.Com and issued an "underperform" recommendation.
Investors didn't like seeing the high-flying stock getting talked down.
Bid.Com, Canada's largest online auctioneer, also took umbrage.
When it decided to do a $25-million warrant offering it September, the
company gave Yorkton the cold shoulder -- even though Yorkton had led
several other financings -- and turned to Canaccord Capital Corp. instead.
Pavan remains cool to the stock. He thinks Bid.Com is headed in the right
direction by focusing more on the business-to-business sector.
But he said he's still uncertain about how the company will generate its
revenue stream, and he thinks the stock is overvalued given current
revenues.
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