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Pieces of the
eco-friendly pie

Water treatment is a booming industry; it has tons of upside in Canada and abroad

BY JEFF BUCKSTEIN

Canadian investors are increasingly willing to make bold social statements with their money, it seems, especially if it involves eco-friendly industries and companies.

“Green investing is zeroing in on companies and sectors that have good sustainability performance,” says Eugene Ellmen, executive director of the Toronto-based Social Investment Organization.

A number of sectors, particularly those dealing with non-fossil forms of alternative energy, such as wind and solar energy, are making serious inroads as viable business models, experts say, to the point where they could become long-term money makers. Water treatment is one industry seen as having immediate potential, both for the environment and for stock investors.

“Water treatment is a booming industry; it has tons of upside in Canada and abroad. I think it is a great place for companies to be in,” says Bob Mann, head of clean-tech indices for Jantzi Research Inc., an independent investment research firm in Toronto. Calgary-based Aqua-Pure Ventures Inc., for example, provides industrial and municipal clients with wastewater services and technology solutions. Aqua-Pure is heavily involved in recycling water in the Barnett’s Shale Field near Fort Worth, Texas, one of the largest gas fields in North America.

Energy producers need fresh water to drill and complete their wells; they then have to pay to dispose of the salty wastewater, which Aqua-Pure recycles back to fresh water, notes chief executive officer Jacob Halldorson, who adds the firm is eyeing similar projects in Canada.

Aqua-Pure’s stock (TSX-AQE) traded at 85 cents a share as the TSX opened in August. The company had a net loss of approximately $4.26 million in the fiscal year ended Dec. 31, 2007, compared to a loss of just over $5-million in 2006, but expects to become profitable by Dec. 31, 2009, Mr. Halldorson says.

Another hot area is the development of communications networking solutions to help smooth out the electricity grid and save energy.

“As we put a price on our carbon, which is happening quite rapidly in both Canada and [the United States], dirty forms of electricity become more expensive. We won’t be able to shift to cleaner ones overnight, so people are going to be figuring out ways to conserve electricity,” says Toby Heaps, the Toronto-based editor-in-chief of Corporate Knights, which promotes responsible business in Canada.

“A central component of that will be software that allows consumers to make more efficient use of their appliances,” he says. “The people and technology that can help make that happen will be in the centre of multibillion-dollar markets.”

One such company is RuggedCom Inc. of Woodbridge, Ont., which services the electrical grid. It provides communications networking solutions – specifically Ethernet switches and network routers – designed for use in mission-critical networks operating in harsh environments with high levels of electro-magnetic interference. These switches and routers help automate aging grid systems.

RuggedCom’s network communications are also applied to devices in substations that include new smart-grid systems that improve efficiency by reducing electricity losses and controlling demand and supply. “The number one requirement for a smart grid is a communication infrastructure integrated with the power system infrastructure,” says Marzio Pozzuoli, the founder, president and chief executive officer of RuggedCom.

RuggedCom (TSX-RCM) was trading at $13.65 a share at the beginning of August. For the fiscal year ended March 31, 2008, the company’s net income was $4.86-million, up from $2.77-million in 2007, and $1.43-million in 2006.

The electricity market provides significant opportunities for RuggedCom’s growth, notes Toronto-based research analyst Carolina Vargas of Clarus Securities Inc.

Ms. Vargas notes that there are roughly 275,000 power stations worldwide that need to be automated, and this number is growing at the rate of about 3,500 stations every year.

RuggedCom’s sales are worldwide, with about half taking place outside North America, Mr. Pozzuoli says.

While alternative fuels are being developed, so too are technologies to burn existing fossil fuels more efficiently and thus reduce greenhouse gas emissions. Investors may also want to consider stocks in companies in this sector.

Westport Innovations Inc. of Vancouver, for one, is researching, developing and marketing high-performance engines and fuel systems that burn less polluting fuels such as compressed and liquefied natural gas and hydrogen. The company was recently ranked ninth among Corporate Knights’ listing of Canada’s Best 50 Corporate Citizens for 2008.

Westport’s share price (TSX-WPT) at the beginning of August was $13.04. It also recently issued a 3.5:1 share consolidation ahead of its announced intention to list on the NASDAQ.

Westport has lost money over the past three years – more than $10.3-million in the fiscal year ended March 31, 2008; nearly $11.3-million in 2007; and $16.86-million in 2006.

However, a joint venture with Cummins Inc. (Cummins Westport Inc.) that is developing, distributing and selling natural-gas engines for buses and medium-duty trucks, has been a moneymaker since fiscal 2005, says Philip Tulk, an analyst with Vancouver-based investment dealer PI Financial Corp.

Mr. Tulk calls Westport “a good stock” and expects the company as a whole to “turn the corner” to profitability by March, 2010. There are “a lot of energy technology companies out there with strong concepts, but without necessarily good markets ready to take their products. Westport has strong end markets,” Mr. Tulk adds, citing its supply of LNG-fuelled trucks to venues in southern California as an example.

Myriad other companies and industries are also springing up in response to the demand for new eco-friendly products and services. For instance, as questions arise about the economic viability and ethical merits of corn-based ethanol as an alternative fuel source, researchers are seeking other sources of ethanol, such as cellulosic ethanol and ethanol produced from algae or switchgrass.

However, some experts believe the potential commercial benefits from such alternatives are still many years away; stock investors drawn to such companies need to remember that new ventures usually carry higher risks.

Special to The Globe and Mail

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