The share price for Calgary-based Computer Modelling Group (TSX:CMG) may be down ten per cent over the last year, but with a run-up in oil prices and better-than-expected results for the last three quarters, now’s the time to buy CMG, says analyst Amr Ezzat with 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.