Canada’s Bright Spots Amid COVID-19: The Gradual Return of Investments in Sunshine Sectors

Summary

• The economy and market gradually recovering as a series of federal investments pour in
• Most of these investments are in upcoming sectors such as plant-based protein alternatives and cleantech
• New social distancing rules and remote working conditions have altered the consumer behavior, funneling funds to sectors likely to play a key part in post-COVID-19 world

Canada’s economy and employment has been decimated by containment measures enforced to curb the spread of the coronavirus. In days following the lockdown, the country’s economy entered a recession and markets crashed, wiping off investor wealth worth millions.

Key policy changes and federal support since then has helped markets and businesses bounce back slowly but attaining the pre-pandemic levels of growth still seems like a distant affair. The Bank of Canada kept its benchmark interest rates intact and promised to continue buying at least C$ 5 billion per week of Canadian government bonds until the recovery is “well underway.”

Meanwhile, Justin Trudeau-led federal government has continued to support the coronavirus-`impacted business ecosystem, extending the wage subsidy scheme till the end of 2020.

Employment data for June, released by Statistics Canada, shows that the country reclaimed nearly one million jobs lost to the pandemic.

Jobs in the combined verticals of finance, insurance, real estate, rental and leasing went up by 2.7 percent in June 2020 as compared to the same period last year. These industries were the only ones to post year-on-year gains, as per the latest Statistics Canada figures.

But the job rebound in May-June accounts for just over 40 percent of the three million jobs lost in March-April.

It marks a promising start to what seems like a long and arduous recovery. But the question remains: when will the market bounce back to pre-COVID-19 employment levels?

The likely answer can be found in the series of federal investments and private funding.

Investments and Funding

Canada is back on the second place in the list of most attractive nations for foreign direct investment owning to its educated workforce and the country’s participation in free trade agreements, according to Kearney FDI Confidence Index for 2020.

The improved rankings and increased investments are expected to play an important role in employment generation in near future.

The federal government too has made a series of investments in upcoming sectors and industries.

Ottawa recently announced C$ 100-million investment in Merit Functional Foods, a company specializing in plant-based protein production. The facility will be based in Winnipeg and employ over 250 people.

One of the largest Canadian food processor Maple Leaf, an early mover in the segment, acquired alternative protein brand Lightlife Foods last year – a bet beginning to pay off well on the balance sheets and the Toronto Stock Exchange.

World’s biggest food company Nestlé recently announced collaboration in the plant-based protein segment with Canadian firms Merit Functional Foods and Burcon NutraScience.

The plant-based food and beverage alternatives industry has a favorable environmental footprint and is expected to grow at 14 percent annually by 2024 to reach a third of Canada’s entire protein market, according to National Research Council Canada. Another report by BIS research suggests that the market will grow at a significant CAGR of 13.82 percent between 2019 to 2024.

The federal investments in the segment can spark further interest, leading to many more businesses venturing into the domain and generate new jobs.

Cleantech is another critical area where the federal government is channeling investments.

Sustainable Development Technology Canada (SDTC) recently declared an investment of $41.8 million in 10 Canadian small businesses focusing on clean technology. It also announced seed funding for 17 cleantech startups.

Another $6 million-federal investment was announced for the Petroleum Technology Alliance of Canada and Canadian Gas Association, as a part of the Canadian Emissions Reduction Innovation Network initiative.

As the economy revives from the COVID-19 crisis and lockdown measures are lifted, cleantech is set to be more important than ever. The market is expected to exceed $2.5 trillion by 2022 and developing the country’s natural resources in sustainable and responsible manner will become a key driver of the future.

Some other areas of federal investment include community-based northern food security project and women’s economic security projects – both aimed at generating employment.

However, the overall venture capital investment is down across the country, except for companies involved in the fight against COVID-19, says audit firm KPMG.

Among the top deals of the second quarter of this year, at least three major investments went to companies involved in fighting the pandemic, adds KPMG. This includes a $142-million investment in biotech firm Abcellera that is trying to develop human antibodies for the pandemic, and another $81 million going to Ventus Therapeutics that is developing medicines for the immune system.

Developing a vaccine against the novel coronavirus is among the top priorities across the world, and businesses involved in it have got the lion’s share of new financing.

The new social distancing rules and remote working conditions have altered the consumer behavior, perhaps forever. As a result, most funds are being funneled into sunshine sectors that are likely to play a part in the post-coronavirus world.

These measures are will keep the momentum going, helping businesses stand back on its feet and generating more employment.

Presenting two hot stocks from the plant-based protein alternative industry and cleantech:

dynaCERT (TSX:DYA)

Cleantech firm dynaCERT Inc produces and sells technology for reducing CO2 emissions and improving fuel efficiency, which is used in internal combustion engines. Its product HydraGEN, produces hydrogen and oxygen on demand, and is designed for on-road applications.

The company recently graduated to the Toronto Stock Exchange. Its scrips posted gains of over 56 percent in a year and was announced as the top stock on the TSX Venture 50 list. Before the COVID changed the market circumstances, DynaCERT’s share price shot up by 284 percent in 2019.

It has a current market cap of C$ 211 million and recently closed over C$8.3 million in overnight marketed equity financing.

Maple Leaf Foods Inc (TSX:MFI)

Counted among the largest consumer food firms, Maple Leaf employs nearly 12,000 people and has markets in Canada, United States, Japan and Mexico. The company produces processed foods such as packaged meats, pasta and meals.

The company’s shares advanced over 7 percent in 2020, gaining due to altered consumer behavior in the face of pandemic as people stock up food.

Its future-mapped acquisition of Lightlife Foods, a company producing plant-based protein alternatives for meat, has paid off well so far. In the first quarter of 2020, the firm posted an overall sales growth of 12.8 percent. Its meat protein segment posted sales growth of 12.7 percent while the plant protein group reported sales growth of 25.9 percent.