Another solid quarter for Calgary’s Computer Modelling Group (TSX:CMG) has Industrial Alliance Securities analyst Steve Li feeling bullish about the company’s prospects.
Last Thursday, Computer Modelling Group reported its Q2, 2014 results. The company earned $7.47-million on revenue of $19.7-million, a 14.8% topline bump over last year’s second quarter.
Li says Computer Modelling Group is characterized by a low investment risk because its business model boasts recurring revenue of more than 78%. He also points out that it has been maintaining an EBITDA margin of more than 50% on a trailing twelve months basis since fiscal 2009, and sports a growing dividend.
The analyst says one of CMG’s fastest growing business segments is simulation for shale and tight gas formations. He believes the opportunity in the space could be a large as the market for simulation in heavy oil. He also thinks the U.S. market has the potential to contribute revenue “far more substantially” than the Canadian market can.
“In our opinion,” says Li, “the United States is really the key market for explosive growth. It currently accounts for 20.2% of revenues, and grew at 12.2%. However, the growth of shale and tight gas exploration, along with numerous multi-nationals oil and gas firms operating in Houston, we expect this segment to be at least double the size of Canada.
In a research update to clients following the results, Li maintained his one-year target of $17.50 on Computer Modelling Group, but raised his recommendation on the stock from “Strong Buy” to “Top Pick”. He says his “high conviction” coupled with a potential return of 57% at the time of publication is the reasoning behind the upgrade.
At press time, shares of Computer Modelling Group were up 3.7% to $12.24.