This Canadian stock’s software helps major oil and gas customers make profitable engineering decisions more quickly.
Producers can map out their reservoirs thoroughly and extract the greatest possible volume of oil or gas. Over the past year the company has introduced new technologies, including artificial intelligence. The company is cash rich and debt free and enjoys steady revenue thanks to a customer renewal rate of 98%. Meanwhile, its dividend yields a high 4.7%.
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COMPUTER MODELLING GROUP LTD., (symbol CMG on Toronto; www.cmgl.ca) offers software and consulting services to help conventional oil and gas producers create 3D models of reservoirs. That lets them squeeze more out of those holes using advanced recovery techniques such as injecting steam or chemicals. Without that help, typically only 25% to 30% of oil and gas is recovered with drilling.
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, this technology is designed to speed up the simulation models to allow customers to spend less time collecting data and more time analyzing it to make engineering decisions.
For the three months ended June 30, 2018, the company’s revenue fell 12.0%, to $16.7 million from $19.0 million a year earlier. In the latest quarter, Computer Modelling earned $4.3 million, or $0.05 a share. That’s a 14.1% drop from the $5.2 million, or $0.06, it earned a year earlier.
The declines were mainly the result of timing differences in the recognition of revenue for certain contracts. A change in accounting policy also contributed to the decline. If these items are factored out, revenue and earnings were unchanged from a year earlier.
On June 30, 2018, the company held cash of $60.1 million, or $0.75 a share. It has no debt.
Energy stocks: Calgary relocation should boost operational efficiency
Last year, Computer Modelling Group moved into its new headquarters in Calgary. That building features training facilities for customers and relocated the company’s entire team to one location. The company 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 2018 fiscal year, 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 when oil and gas prices are low.
The stock pays a quarterly dividend; the annual rate of $0.40 yields a high 4.7%.
Recommendation in Stock Pickers Digest: Computer Modelling Group is a buy.
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