Small cap discoveries for 2016- report from Sophic Capital in Cantech Letter

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This report was adapted by Cantech Letter from a piece prepared by Sophic Capital. For the original report, and more in-depth research, please visit Sophic Capital’s website, here.

The stock markets are recovering from summer’s ugly sell-off. Small-cap stocks got slaughtered, and when small-cap stocks get slaughtered, a lot of Canadian small-cap technology stocks are crushed. Summer was no exception and combined with tax-loss selling we think some names are set up well for 2016. Thankfully, at least from a stock-market perspective, summer is over, and investors are starting to get interested in good stocks again. If you’re an optimist, you know the summer slaughter was a temporary blip over the long-term, and small-cap tech stocks are ripe hunting grounds to find multi-baggers, even after the Fall rally.

More excerpts from the report…

“I know exactly what is happening on my plant floor” – don’t believe it.This is the perception of many people who work within manufacturing facilities. However, many have no basis to reach this conclusion. It’s a problem prevalent in the manufacturing industry. Machines and robots manufacture almost everything we use. And although these machines are reliable, few are monitored for efficiency. And if something isn’t monitored, it cannot be optimized. We believe that industrial IoT will have a big impact that will likely reward investors handsomely. Major machine manufacturers are modifying their machines to accommodate monitoring, but the majority of machines in use today aren’t exploiting this ability. Later on in this report, we highlight MEMEX Inc. (TSXV:OEE), a company disrupting manufacturing facilities by helping machines to “talk.”

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For the manufacturing industry, IoT has the potential to grow from $42.2 billion in 2013 to $98.8 billion in 2018 (18.6% CAGR). IDC, the research firm that created the forecast, believes that efforts to increase efficiency and link islands of automation on the factory floor will be the drivers behind this growth.* Exhibit 23 details some of the reasons why manufacturers are considering IoT solutions. So how can investors participate in the enormous Industrial Internet of Things market?

 

MEMEX Inc.’s flagship product MERLIN is an industrial-strength shop-floor-to-top-floor communications platform that massively boosts productivity in highly competitive, data-driven manufacturing companies like Mazak, Magellan Aerospace, and Milwaukee Tool. MERLIN software allows factories to monitor productivity and Overall Equipment Effectiveness (OEE) metrics anywhere in real-time. Proven in single and multi-plant installations on three continents, MERLIN delivers a 10% to 50% average productivity increase, earns 20%-plus profit improvement based on just a 10% increase in OEE, consistently achieves payback in less than 4 months with an Internal Rate of Return greater than 300%, and connects to any machine, old or new. With MERLIN, the productivity promise of Industrial IoT isn’t a theoretical construct – it’s a real-time reality.

 

For the original piece in Cantech letter  click here