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Why Does Bay Street ignore Computer Modelling Group (TSX:CMG)

Canadian Stock News Cantech

Cantech Letter is very pleased to welcome a new contributor,
Adam E. Adamou.

Adam is a Chartered Financial Analyst (CFA) with a B.Comm from the
University of Toronto. He was a founding employee of Working Ventures
Canadian Fund
in 1991, a Canadian venture capital fund that grew to over
$1 billion in assets by 1996. Adam is a serial entrepreneur and
investment banker and has backed success stories such as Research in
Motion
(RIMM) in their venture capital seed round in 1994, SXC Health
Solutions Group
(SXCI) as a venture investor (1996) and investment
banker in 2000, and Absolute Software Corporation (ABT) in 2005.
Recently he founded Caseridge Capital Corporation, a Toronto based
boutique advisory and investment firm that focuses predominantly on
Canadian technology stocks.

We love the The Caseridge Dealbook, edited by Mr. Adamou, because it
gives us a sophisticated, insiders look at Bay St. It offers
independent, unbiased, and objective advice.

Cantech Letter will excerpt from The Caseridge DealBook on a
regular basis, but we encourage you to subscribe to the letter
yourself.
It can be found by submitting a request for membership to the “Caseridge
TechSys Dealbook Network” on Linkedin.com

If you are on Twitter, you can follow @Caseridge

In our first excerpt from The Caseridge Deal book; Adam Adamou reports on
Caseridge top pick Computer Modeling Group (TSX:CMG)

cmglogo1

Computer Modelling Group Hits New All Time High – So Why Do The Analysts
Not Care?

We have been singing the praises of Computer Modelling Group for five
years now. With the announcement today of record results (again) and a
20% increase in the dividend payment (again) alongside the payment of a
special dividend (again) – CMG is a company that services the largest
energy companies in the world with some of the most advanced modeling
software ever developed and yet… “Bay Street” analysts don’t seem to
care.

With a market capitalization now exceeding $200,000,000, a large and
growing cash balance, tremendous revenue growth on strong gross margins
and positive cash flow along with a strong three year chart
one would think that analysts at the big banks in Canada and in the US would be all over it. They are not.

As far as we can tell, we’re the only people on Bay Street that have consistently followed and talked about CMG over the last four years. The only other firm that has put research out on the company is Calgary based Acumen. So what’s the story?

Could it be that CMG doesn’t find it necessary to pay huge investment banking fees that is the cause of the problem? CMG doesn’t need to issue shares to finance its operations – it does a damn fine job on its own, thank-you, and is in fact buying back shares with its excess capital and paying dividends with a portion of the rest.

CMG is an aggressive, yet conservatively run technology company, with
results that speak for themselves. That they haven’t paid any meaningful
fees to the Street in nearly a decade is a tribute to their success, but
it might also be the reason why this incredible company is ignored by
the
Street.

Smart investors shouldn’t care. While the Street was sipping their
Thursday night Apple Martini’s at Bymark last night, CMG shareholders
were laughing all the way to the bank.

We recently increased our target price TSX:CMG from $12.00 to $15.00
prior to the release of the results, as we anticipated the good news
coming down the pipeline, and now as result of CMG’s on-going
outstanding performance we have increased our target again to $18.00.
Adding in the dividend yield, CMG is the top performing company in our Top Picks index, gaining over 120% since our initial recommendation on Dec. 15, 2008.

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About The Author /

Comment

  1. Of course, we should point out that as we are running this article it is a bit dated; the share price of CMG has had a great run since April -from about $8.50 to about $14.50 today. Adam Adamou has been a tremendous supporter of The Company long before this runup.

    In coming issues we will get more “hot off the presses” stuff from Caseridge. Suffice to say they are worth following, as their picks beat the market with great regularity.

  2. Any idea what percentage of CMG’s total revenue is recurring maintenance revenue?

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