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Clean tech: the new kid on the block

'Next wave' category of companies that produce clean power and help reduce emissions added to ranking of top performers

From Thursday's Globe and Mail
June 19, 2008 at 12:00 AM EDT

The argument rages over global warming is it happening or not? but there's no argument about the performance of stocks in the clean technology industry: They are hot.

So hot, that companies focused on cleaner ways to produce power and other goods now warrant their own sector in the third annual TSX Venture 50. The 50 is a ranking of the top 10 performers in five industries on the TSX Venture Exchange from 2007: clean tech, mining, diversified industries, oil and gas, and technology and life sciences.

"It's a growing sector and we're seeing more of it all the time, so it's something that we thought the investment community would appreciate us focusing on," says Kevan Cowan, who heads the TSX Venture Exchange. "Certainly behind the scenes a lot of institutions are telling us they really see that as the next wave or one of the next waves."

There are now almost 100 clean tech companies listed on the TSX Venture and the senior TSX exchange, with a market value of more than $13-billion as of the end of 2007. And Mr. Cowan is working on drumming up more.

Investors are interested in the steady returns from companies that produce power from wind farms and other clean sources such as geothermal and water, and in the big gains possible from bets on companies with new technologies that can help reduce emissions in other sectors.

The biggest winners in 2007 fell into the latter category. The top performer was Zongshen PEM Power Systems Inc., a Chinese company that's listed on the Venture Exchange. Zongshen makes electric bikes, which have become a big hit as soaring gas prices push commuters to seek other ways of getting around. Questor Technology Inc., the No. 2 finisher, makes incinerators that burn waste gases.

Naikun Wind Energy Group Inc., which plans a wind farm off the coast of British Columbia, had the third-best return.

Those performances are starting to draw notice from investors here in Canada. Until recent years, almost all of the investors in Canadian-listed clean-tech companies came from Europe, where there are dedicated funds that seek out environmentally friendly plays.

But of late, that's starting to shift, said Sasha Jacob, an investment banker whose firm, Jacob & Company Securities, has a focus on clean tech.

"The U.S. are very big buyers with dedicated funds focused on the sector," said Mr. Jacob. "And finally you're getting Canadian interest."

Still, 2008 may be a tougher year for smaller companies in all sectors than 2007. Even with commodity prices booming and oil soaring, concerns abound.

Worries about the financial system's stability have made some investors leery of the kind of junior company in which the Venture exchange specializes.

The Venture exchange's benchmark index, which soared in the early part of 2007, slumped amid the credit crunch and has yet to recover. So far this year, the Standard & Poor's/TSX Venture Composite Index is down more than 7 per cent.

"2007 was just hitting the ball out of the park in every single category, so that's a tough benchmark to meet again, but it does show how far the Venture Exchange has come," said Mr. Cowan.

To ensure growth, the TSX Venture continues to look abroad for new companies to list.

Along with Zongshen, two other companies in the Venture 50 are from China, a fertile ground for the TMX Group Inc., which owns the Venture and senior TSX exchange.

Chinese companies "have really latched on to the idea of the Venture as a training ground to understand public markets in the West," said Mr. Cowan.

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