Industrial Alliance Securities analyst Elias Foscolos liked what he saw in the latest quarterly results from Computer Modelling Group (Computer Modelling Group Stock Quote, Chart, News TSX:CMG), which included double-digit core revenue growth.
In an update to clients on Wednesday, Foscolos maintained his “Buy” rating and called the company’s Q3 another solid quarter for CMG’s core business.
Calgary-based software company to the oil and gas sector CMG on Wednesday released its third quarter fiscal 2020 results for the period ended December 31, 2019.
Total revenue of $19.3 million was a hair above Q3 2018’s $19.1 million, while adjusted EBITDA was $10.0 million, according to Foscolos’ calculations.
“We continue pursuing our goal of increasing software license sales, particularly internationally, with the support of various R&D initiatives (such as our public cloud offering, CoFlow development,product feature and functionality enhancements). In December 2019, we implemented organizational changes in order to focus on the usability of our software, improved workflow and positive customer experience,” said the company in its press release.
For the quarter, Foscolos was estimating $19.7 million in revenue, while CMG’s Annuity and Maintenance Licenses revenue of $16.4 million (excluding recognition of revenue earned in prior periods) was better than the analyst’s $16.1 million forecast and a ten per cent improvement year-over-year. Perpetual Sales revenue was $1.0 million compared to the analyst’s $1.1-million estimate, representing a 58-per-cent year-over-year increase, while Professional Services came in at $1.7 million, lower than the analyst’s $2.1-million forecast but a 39-per-cent year-over-year improvement.
Foscolos noted CMG’s strong performance internationally where core Maintenance/Annuity revenue in South America and the Eastern Hemisphere grew by 16 per cent and four per cent year-over-year, respectively. Canadian licenses grew by five per cent from a year earlier.
The analyst says deferred revenue from CMG is a good indicator of solid growth.
“Looking beyond the headline numbers, CMG posted a solid quarter. Although EBITDA fell short of expectations due to higher non-cash items and lower unpredictable Prior Period revenue, high quality Maintenance/Annuity revenue was higher. We believe this trend will continue, and we have made revisions to our model that result in a $0.25 increase in our target price to $9.00,” Foscolos wrote.
“Since bottoming in Q4/F18 at $14.4 million, CMG has steadily grown its core software license revenue in both functional and reporting currency, with FX tailwinds also being a factor in the latter. This growth has occurred despite low commodity prices and declining producer spending in Canada and more recently in the US,” he added.
“We expect to see mid-single-digit growth in core revenue through our near term forecast, which drives increase funds flow over the next two years without any projected increase in run-rate Perpetual, Prior Period, or Professional Services revenue,” Foscolos said.
CMG finished 2019 up 35 per cent. So far in 2020, the stock is down three per cent.
On Tuesday, CMG declared a $0.10 per share quarterly dividend, which was in-line with previous quarters. The dividend’s forward yield sits at 4.9 per cent.