Ottawa entrepreneur Terence Matthews deserves credit for his sheer nerve. His attempt to take Kanata, Ont.-based March Networks Corp. public later this month flies in the face of weak technology markets.

The Nasdaq composite index and the TSX information technology index have not only weakened considerably from their December highs — down 7.5% and 14.8%, respectively, at March 16 — but they also showed little signs of breaking out of their rut.

Investors aren’t exactly clamoring for initial public offerings from the tech sector. “There was a little spurt of IPOs in late 2003 and early 2004, but things have pretty much cooled off,” says Kevin Dalton, CIBC World Markets’ managing director, head of technology, media and telecom investment banking. “It’s still a mediocre tech market on both sides of the border.”

It has been that way for some time, so Matthews has his job cut out for him. Since tech stocks imploded in 2001, only seven Canadian information technology firms have gone public on the TSX or Nasdaq. Only two are currently trading above their IPO prices:
Toronto-based Workbrain Corp. and Montreal’s 20-20 Technologies Inc.

In the case of Workbrain, a developer of software for managing workforces, solid performance has been the key. The company moved to a profit of 3¢ a share during its most recent quarter compared with a 1¢ loss a year earlier. More impressive, Workbrain posted a year-over-year revenue gain of 87% to US$17.8 million.

Workbrain went public on the TSX in December 2003 and has attracted the largest analysts’ following of the group of seven. Bloomberg lists five analysts, of whom four have issued recent reports.
Three are “buys” with 12-month share price targets ranging from $20 to $24 — compared with a March 15 price of $16.30.

Similarly, 20-20 Technologies has been trading above its IPO price despite less-than-stellar financial numbers.
Fourth-quarter earnings at the specialist in 3D interior design and sales software dropped to US4¢ a share from US9¢ a year earlier. Sales improved 24.3% over the same period to US$10 million, which in technology terms is a so-so result. The best explanation for the good performance of its share price has to do with the timing of its IPO. The company went public late in 2004,
when the TSX information technology index was more than 30% below its February peak. The Montreal firm was forced to accept a lower share price at the outset.

This was not the case with the other five tech IPOs, which rushed to take advantage of strong markets in early 2004. The group raised more than $210 million by pricing its offerings aggressively. But shareholders have been left wondering what the fuss was all about.

As of March 15, four of the new issues were trading more than 40% below their IPO prices. Not all of this can be blamed on a weaker technology market.

Calgary-based Guest-Tek Interactive Entertainment Ltd. was the first out of the gate with a February IPO that raised $44.6 million. The prospectus for the provider of entertainment services to the hospitality industry showed quarterly revenue and earnings to be on a steady upward track.
Only months after going public, Guest-Tek was forced to acknowledge accounting issues revolving around revenue recognition would result in a delay of its numbers for fiscal 2004, which ended March 31.

The firm is still paying the price. Revenue for its recent quarter was down 6% from last year and it posted a loss. Two Bloomberg analysts both rate Guest-Tek a “hold.”

Burnaby-based Xantrex Technology Inc., a developer of products that convert electrical power into forms that can be used by electronic equipment, not only lost a major customer shortly after going public, but its chairman also acknowledged its operations could have been more efficient. Its move to outsource more of its manufacturing was also handled poorly. It’s rated a “hold” by two of three analysts who have filed reports.

Some members of the group of seven saw impressive sales growth, yet still suffered drops in share value. Calgary-based 180 Connect Inc., a provider of technical support services for satellite and cable companies, saw revenue soar 144% year-over-year in its recent quarter to $60.5 million and earnings jumped to 11¢ a share from nil. So why was its share value 41% below its IPO price in mid-March? Much of it had to do with growth strains.