Industrial Alliance maintains buy, but lowers target on CriticalControl Solutions

Industrial Alliance Securities analyst Steve Li says both of CriticalControl’s energy services units will continue to be impacted by the weak natural gas prices, and he doesn’t expect this to change in fiscal 2013.On Friday, CriticalControl Solutions (TSX:CCZ) posted its Q4 and fiscal 2012 results. For the year, the company earned $300,000, while its topline fell 5% to $46.8-million.

CEO Alykhan Mamdani said the company is in good shape going forward.

“We have executed on our strategic objectives, increased our recurring revenue and reduced our debt by $1.6-million, despite the challenging environment,” he said. “Our continued investment in new products, sales and marketing will provide improved and sustainable long-term viability.”

Industrial Alliance Securities analyst Steve Li says both of CriticalControl’s energy services units will continue to be impacted by the weak natural gas prices, and he doesn’t expect this to change in fiscal 2013. What’s more, he says, the company’s Service Bureau Operations declined 21.3%, year-over-year to $3.5M this quarter, which was a sharper decline than the 8% he expected. In a research update to clients this morning Li, maintained his BUY rating on CriticalControl Solutions, but lowered his price target from $.60 to $.40.

Calgary-based CriticalControl Solutions was founded in 1999 by current CEO Alykhan Mamdani. The company supplies data management and enterprise content management tools to half the provincial ministries of the Alberta government, but the bulk of its revenue comes from sales to oil and gas companies. Higher fuel prices means more demand for CriticalControl’s gas composition management, gas chart integration and field device control technologies, particularly in the United States energy service sector, where the company has looked to expand. CriticalControl is consistently profitable, and has grown its revenue from just $23-million in 2007 to nearly $50-million in fiscal 2011 before the fiscal 2012 fall back.

Li says his reduced estimates are meant to reflect the headwinds he think both segments of CriticalControl Solution’s business will face in fiscal 2013. His new target price is derived from reducing his revenue expectation to $44.9-million from his previous $51-million, and his earnings estimate to $.03 from his previous $.04. Noting that his target price is still well above CCZ’s current price, Li describes the company’s stock as “…still grossly undervalued”.

Shares of CriticalControl Solutions closed today down 3% to $.16.

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