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FP500 industry outlooks from banking to cannabis to telecoms

Financial Post logo Financial Post 2021-06-21 Andy Holloway
a sign on a pole: FP 500 takes a look at 10 sectors in Canada.   © Provided by Financial Post FP 500 takes a look at 10 sectors in Canada.


The big banks are still wildly profitable, even though they allowed people to defer mortgage payments during the pandemic and were hamstrung by increased capital requirements to cover potential loan losses and ensure their ongoing viability. As a result, the Big Six have built up billions of dollars of excess capital and haven’t been able to distribute it in the usual form of dividend increases, share buybacks and, potentially, acquisitions.

Eventually, the Office of the Superintendent of Financial Institutions (OSFI) will decide the economy is in good enough shape to loosen up capital management restrictions so investors will be interested to see what happens afterward.

“With significant excess capital, we believe the Big Six banks are well-positioned to resume dividend growth and share repurchases through [normal-course issuer bids] once OSFI lifts restrictions (likely later this year),” a Canaccord Genuity Capital Markets report noted in March.

The United States Federal Reserve has already indicated it will loosen the strings at the end of June, providing banks pass a stress test, which will put pressure on Canadian regulators to do likewise. Passing a stress test here shouldn’t be a problem given that Moody’s in March pointed out that the Big Six held about 93% of the banking system’s assets, 89% of total domestic deposits and 88% of total domestic loans as of year-end.


Biotech & Health Care

If the pandemic put the spotlight on one industry, it’s biotechnology and health care. Although no one in Canada has made a COVID-19 vaccine licensed for use, it was refreshing to learn that the breakthrough formula for Pfizer Inc.’s vaccine was developed by researchers at the University of British Columbia.

Perhaps there is something more here than meets the eye. There are about 900 biotechnology companies in Canada, venture-capital investments in the sector grew to $6.2 billion in 2019 from $2.3 billion in 2015, and the recent federal budget’s allocation of almost $3 billion to the sector adds some more momentum.

“Importantly, the pandemic has also led other nations to recognize the social and economic importance of a strong domestic biotech sector,” says Andrew Casey, CEO and president of industry association BioteCanada. “Correspondingly, the global competition to attract inherently mobile companies, investors and talent, is more intense than ever before.”

Canada’s competitive edge, he says, is that its base is its globally recognized science and discovery expertise, much of which emerges from universities and research centres. In addition to all pre-commercial biotech companies and strong venture-capital community, he also notes there are plenty of multinational companies, research centres and networks, incubators and accelerators.



Here’s to you, bud. It may seem like a cannabis shop is either open or about to be on every street corner, but there is apparently still plenty of room for more, according to researcher Brightfield. For example, the number of stores in Ontario grew to 444 in 2020 from 145 in 2019, but Alberta, with a much smaller population, was up to 574 dealers from 493 in the same time frame.

“There’s still massive potential for more retail outlets before (Ontario) hits saturation with its large population,” Brightfield said. Helped by being deemed essential, alongside food and personal protective equipment, recreational cannabis sales more than doubled to $2.6 billion in 2020, from $1.2 billion in 2019, and Brightfield predicts the market will be worth $4.2 billion this year and almost $8.2 billion in 2026. The medical market adds another $450 million in sales.

Aside from greater retail access, Brightfield says a larger variety of products and a focus on quality will help drive sales in 2021 and beyond. Another catalyst is the increasing legality of cannabis down south, with a few U.S.-based cannabis companies already showing up in the FP500 database.

“We believe that the U.S. cannabis market is at an inflection point where continued state legalization will further accelerate sales and help cannabis companies get their footing in advance of potential federal legalization,” noted Andrew Little, a research analyst at Global X.

Construction & Engineering

It may sound like a broken record, but there’s reason to be bullish on this sector if you believe Prime Minister Justin Trudeau’s infrastructure spending plans will ever get underway in earnest. The Investing in Canada Plan is supposed to spend more than $180 billion over 12 years, but there’s nothing as grand as U.S. President Joe Biden’s US$2.25-trillion infrastructure vision, which includes a wholesale switch to electric vehicles and a nationwide network of charging stations.

Instead, there are some rapid transit improvements, led by the $1.3-billion extension of Montreal’s Metro Blue Line, all the way down to $750 for a video inspection of a sanitary line somewhere in Ontario.

It’s possible that Canadian companies might be able to get some of the U.S. contracts, though Biden has promised to prioritize U.S.-based suppliers and made-in-America products.

That likely doesn’t matter to SNC-Lavalin Group Inc., given its 2019 decision to exit lump-sum turnkey construction contracting in favour of engineering services.

Raymond James Ltd. analysts say that decision is likely the right one in the long run, but may hurt growth by acquisition in the short run, especially given the reduced dividends coming from Highway 407. M&A activity is still a big growth avenue , as WSP Global Inc.’s $1.4-billion acquisition of Switzerland-based engineer B+P Baurealisation AG in March shows.

Video: Snap-On CEO on inflation concerns (CNBC)


Information Technology

Big Tech, a term generally used to refer to a group of five American companies — Inc., Apple Inc., Google LLC, Facebook Inc. and Microsoft Corp. — is in the news more than ever. A couple of those, Google and Facebook, are considered part of the media industry and Inc. is one of Canada’s biggest merchandisers, but their collective influence stretches well beyond nominal industry categorizations.

For the most part, aside from a Facebook scandal here and there, the Big Five have had free rein, but things are getting a bit dicier. is being investigated by Canada’s Competition Bureau for possibly “impacting competition to the detriment of consumers and companies that do business in Canada.”

At least has a booming competitor in Shopify Inc., now the country’s largest company by market cap despite having $3.9 billion in revenues last year compared to $61.3 billion at Royal Bank of Canada, the former No. 1.

Shopify’s stock has also grown the most over the past year on the S&P/TSX composite index, making it an investor powerhouse. Facebook and Google, meanwhile, face increasing calls from various governments to pay for the news content they share from publishers around the world. Australia in February became the first country to enact such a law with the News Media Bargaining Code, though both companies contested it.


Food retailers have enjoyed some of their best quarters ever as the pandemic forced consumers to eat more often at home. The same can’t be said for many other retailers, which have complained that e-commerce giants are eating their breakfast, lunch and dinner.

But e-commerce still only accounted for 6.3% of overall retail revenues in Canada for the 12 months ending March 2021 and location-based retailers accounted for almost 40% of that total. There’s some life in brick-and-mortar yet.

“Actually, for the last year, e-com has been a lifeline for non-essential bricks-and-mortar retailers,” says retail consultant Ed Strapagiel.

Still, some pretty big stalwarts have fallen, including Reitmans (Canada) Ltd., which went into bankruptcy protection in May 2020 and now trades on the TSX Venture, and Le Château Inc., which in October 2020 filed for creditor protection, and has since been granted a stay under the protection act until July 16, 2021.

The Canadian Federation of Independent Business in March estimated that one in six, or 181,000, small businesses were at risk of permanently closing, adding to the 58,000 businesses that closed in 2020. Still, retail numbers seem to have stabilized.

“Although a third COVID wave is upon us, affected Canadian retailers should now be faster and smarter with counter-measures such as store sanitation, e-commerce, home delivery and curbside pickup,” Strapagiel noted.

Metals & Mining

The mining industry has always been a boom-or-bust proposition, with down years marked by stalled projects and cost cuts as financing dries up. But the rise of streaming and royalty financing has taken up some of the slack left by private equity and public debt markets.

It is generally accepted that royalty financing began with Franco-Nevada Corp. in the mid-1980s, while the streaming business model is often attributed to Wheaton River Minerals Ltd. back in 2004.

A recent McKinsey & Co. report pegged these alternative forms of financing at more than US$15 billion in 2019, up from US$2.1 billion in 2010, though it still only accounts for 3% or less of the overall financing picture.

“We believe there is room for significant growth in the industry, and several factors will drive tailwinds,” McKinsey noted, pointing to the potential for streaming and royalties to be used for metals other than gold and silver, and for more use outside North and South America, given that 50% of all streaming deals are in Canada, Mexico, Peru and the United States.

Furthermore, McKinsey said there are a lack of development projects on the go, so more financing is needed to meet future demand, and there is renewed investor interest in commodities without having the environmental, social, governance headaches of direct ownership or equity and debt investments.

Oil & Gas

At one point in the early days of COVID-19, oil companies were paying people to take barrels of crude off their hands on the futures market. The culprit, of course, was the reduced demand as economic lockdowns took hold.

At some point, economies will finally and fully rebound and energy demand will rise alongside, but other pressures will likely remain for the long term, particularly when it comes to decarbonization. International majors such as Total SA and Royal Dutch Shell PLC have exited the oilsands amid growing environmental pressure. Yet oil and gas still power many of our homes and most of our vehicles, and a whole slew of petroleum products such as petrochemicals don’t have viable large-scale alternatives.

Nevertheless, Canadian energy companies should try to be at the forefront of developing a clean, green economy. Deloitte has flagged four areas where companies could improve their perception as polluters and reduce their environmental footprint, including eliminating methane leaks, deploying more renewables to cut field operation emissions, using carbon-capture technologies, and reducing fresh water use and wastewater.

“Energy transition is going to take years if not decades to complete, but planning and investments by producers have to be happening now,” noted Andrew Botterill, national oil and gas leader at Deloitte Canada in a 2021 outlook.

Real Estate

Housing has been one of the few sectors to maintain its momentum during the past 16 months, but another real estate segment is also booming: industrial space. Although there is plenty of debate about whether a full return to work will boost the office market’s fortunes, the demand for warehousing space, partly fuelled by e-commerce retail, is eating up big swaths of land around the major cities.

“As lease rates continue to increase, the injection of stimulus capital from all levels of government in Canada and the United States will further ignite the demand in investment industrial/commercial real estate,” says Diana Hoang, associate vice-president at Colliers International. “Post-COVID-19, there will be increased consumer confidence and, as a result, there will be higher demand, which, in turn, means prices will continue to escalate.”

So far, the marketplace has not been able to keep up with demand. For example, vacancy and availability rates in the Greater Toronto Area during the first quarter were at their lowest levels in a year, with more than three million square feet of net space absorbed, the highest amount since Q4 2019. Average asking net rents increased by 36 cents per square foot quarter over quarter. Hoang, however, anticipates more industrial properties will come on stream to meet the soaring demand, which should alleviate some of the pricing pressure.



The telecom industry likes to point out that Canadians get some of the best wireless service in the world, with the big carriers investing significantly more in infrastructure than many of their counterparts elsewhere. Nevertheless, federal government telecom policy has for years been fuelled by a desire to see more competition, with spectrum sales set aside for potential challengers, and repeated calls to cut bills.

Critics cite several studies, including one by ReWheel, that show Canadians have the highest cellphone bills, while the industry points to a PwC study that shows Canada ranks first in the G7 for affordability if you include performance metrics.

“All in all, Canada does not perform very well price wise even in the PwC study, and far more comprehensive studies like that one from ReWheel confirm that Canadians face consistently high prices,” said University of Ottawa law professor Tamir Israel, who is also a staff lawyer for the Canadian Internet Policy & Public Interest Clinic. He also points out that the PwC study only examined unlimited plans.

The Canadian Radio-television and Telecommunications Commission in April ultimately decided Canadians do pay too much, so it will be interesting to see what the government does about Rogers Communications Inc.’s plan to take out Shaw Communications Inc. in a $26-billion deal, thereby acquiring Freedom Mobile.


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