Computer Modelling Group is a buy, says Echelon Wealth Partners

On Monday, the analyst maintained his “Buy” recommendation to clients with a “top pick” status and a reiterated $11.50 target price.

A reservoir simulation company for the oil and gas industry, CMG showed an EBITDA last quarter of $7.4 million, which amounted to a 40.4 per cent margin. Ezzat says he expects that to return to historical levels (45 to 50 per cent) during the next 12 to 18 months.

“With ~90 per cent of sales coming from a recurring revenue base, CMG leverages investors to unique defensive characteristics in declining commodity price markets and to secular growth trends supporting high single-digit top line and double-digit earnings growth in rising commodity price markets,” says the analyst.

“The strength of the product/brand is evidenced in the fact that CMG is successfully displacing oil service bellwethers and gaining market share (most recently in Colombia and the Middle East). CMG is a great refuge for investors seeking a more defensive name (in the short run), while keeping leverage to the secular growth in secondary/tertiary oil production,” he says.

Ezzat claims that three quarters of growth in Annuity and Maintenance revenues are a sign of much improved fundamentals for CMG. His DCF analysis produces an $11.50 target price, which comes with a main impediment risk from crude oil pricing. The analyst’s target represents a 28.1 per cent return on investment as of publication date.