When energy production rises, this Canadian tech stock is in a unique position to benefit.
The company’s software helps producers map out their reservoirs thoroughly and extract the greatest possible volume of oil or gas. In the past year, the company has introduced artificial intelligence to its technology, further increasing efficiency. Enjoying a 98% renewal rate among its clients, this stock stands to gain from higher oil prices.
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COMPUTER MODELLING GROUP (Toronto symbol CMG; www.cmgl.ca) sells software and services that help conventional oil and natural gas producers create 3D models of reservoirs. That lets them squeeze more oil or gas out of those deposits by injecting steam or chemicals. Without the technology, they typically recover only 25% to 30% of the available oil and gas.
Unconventional producers using hydraulic fracturing, or fracking, also use Computer Modelling’s software to determine the best drilling locations and depths. In the past year, the company implemented new technologies, including artificial intelligence (AI) to enhance its reservoir simulation models. Known as Autotone, those applications are designed to speed up Computer Modelling’s simulation models and allow customers to spend less time collecting data and more time analyzing it to make engineering decisions.
In the three months ended March 31, 2018, the company’s revenue rose 1.7%, to $19.4 million from $19.1 million a year earlier. Software licensing revenue contributed 91% of the total; sales from consulting and professional services comprised 9%.
Computer Modelling earned $6.1 million, or $0.08 a share. That’s an 18.1% rise from the $5.2 million, or $0.07, it earned a year earlier. On March 31, 2018, the company held cash of $63.7 million, or $0.79 a share. It has no debt.
Energy stocks: Company continues to increase licensing in Asia
Last year, the company moved into its new headquarters in Calgary. That building features training facilities for customers and relocated the company’s entire team to one location. Computer Modelling invested $16 million over four years in the building’s infrastructure.
Computer Modelling’s sales are mainly recurring revenue from software licenses and maintenance contracts for its products. In the fiscal year ended March 31, 2018, 65% of the company’s software license revenue came from Canada, the United States and South America. But revenue from the Eastern Hemisphere continues to rise due to increased licensing to existing customers in Asia.
Its overall renewal rate is just over 98%, and most of its clients are major oil and gas firms. That lends it stability even with low oil and gas prices.
The stock pays a quarterly dividend; the annual rate of $0.40 yields a high 4.0%.
Recommendation in Stock Pickers Digest: Computer Modelling Group is a buy.
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