Demand for Major Drilling’s specialized services has now recovered. Meanwhile, Computer Modelling is benefiting from expanding oil and gas drilling in response to overall higher energy prices. We think there are still gains ahead for both stocks.
MAJOR DRILLING, $8.98, is a buy.This large contract driller (Torontosymbol MDI; TSINetwork: Speculative) (majordrilling.com; Shares outstanding: 82.1 million; Market cap: $752.0 million; No dividends paid)is a large industry player, mainly serving the mining industry.
In the quarter ended October 31, 2023, the company’s revenue rose 2.6%, to $207.0 million from $201.7 million a year earlier. Increased activity from copper, lithium, silver and nickel customers offset reduced work for junior gold exploration companies.
More specifically, revenue in the Canada-U.S. region decreased 5.7% to $106.7 million. South and Central American revenue increased by 25.9% to $52.5 million for the quarter. And Asian and African operations reported revenue of $47.8 million, which was up 1.9%.
Major Drilling reported slightly higher profits in the latest quarter. It made $23.7 million, or $0.29 a share. That’s up 0.4% from $23.6 million, or $0.29.
The company’s balance sheet remains strong, with cash of $92.5 million, or $1.13 a share. It also has no long-term debt.
Major Drilling is a buy for aggressive investors.
COMPUTER MODELLING GROUP, $9.87, is a buy.The company (Toronto symbol CMG; TSINetwork Rating: Extra Risk) (www.cmgl.ca; Shares outstanding: 80.9 million; Market cap: $805.3 million; Dividend yield: 2.0%)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 three months ended September 30, 2023, the company’s revenue jumped 25.2%, to $22.6 million from $18.1 million a year earlier. Software licensing revenue made up 83% of the total; sales from consulting and professional services comprised 17%. Higher oil and gas prices continue to spur a drilling rebound. In the quarter, Computer Modelling earned $6.5 million, or $0.08 a share. That was up 47.8% from $4.4 million, or $0.05.
On September 30, 2023, the company held cash of $48.2 million, or $0.60 a share. It has no debt. Computer Modelling cut its quarterly dividend by 50%, to $0.05 a share from $0.10, with the June 2020 payment. As a result, the stock now yields 2.0%.
Meanwhile, the company plans to continue to invest in research and development, and its sales and marketing efforts. That should help put it in a strong position to rebound as drilling activity continues to bounce back.
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