Computer Modelling Group has 80% upside, Ventum says

Ahead of Computer Modelling Group’s (Computer Modelling Group Stock Quote, Chart, News, Analysts, Financials TSX:CMG) fourth-quarter fiscal 2025 results expected May 21, Ventum Capital Markets analyst Amr Ezzat reaffirmed his “Buy” rating and C$14.00 target price, in an April 30 research report, citing a disciplined strategy focused on high-margin software growth and free cash flow expansion. That target implies an 80.2% return from current levels.

Ezzat expects $34.8-million in revenue and $11.2-million in EBITDA for the quarter, slightly below consensus estimates. The company does not hold post-earnings conference calls, but Ezzat said the forecast reflects a solid quarter with some caution baked in due to macro uncertainty and mixed signals on energy policy and spending behavior.

“Q4 expectations call for 7.6% year-over-year growth in revenue and a 32.2% EBITDA margin, compared to the Street at 11.4% growth and 33.3% margin,” he said in his April 30 corporate update. The forecast includes a full-quarter contribution from the recent acquisitions of Sharp and BHV, which together form CMG’s Seismic Solutions segment.

Ezzat expects CMG’s legacy Reservoir & Production Solutions segment to report sales of $22.2-million and EBITDA of $9.1-million, while Seismic Solutions should contribute $12.6-million in revenue and $2.1 million in EBITDA. While there may be some volatility from the integration of Sharp, he said it would be expected in the first full quarter of consolidation.

“The key focus going forward will be software revenue growth, margin expansion, and free cash flow growth, as CMG shifts its focus toward growing its higher-margin software revenues while deemphasizing professional services,” Ezzat wrote. “Any declines in professional services revenue or muted total revenue growth could reflect deliberate strategic choices rather than operational softness.

“As such, the emphasis going forward will be on earnings and free cash flow growth rather than top-line expansion.”

For the full year fiscal 2025, Ezzat forecasts CMG will generate $130.5 million in revenue and $44.4 million in adjusted EBITDA, rising to $148.6 million in revenue and $49.7 million in EBITDA in fiscal 2026.

M&A remains a key lever in CMG’s long-term strategy, and Ezzat said the company views acquisitions as “the most impactful lever for compounding free cash flow per share over time.” He pointed to CMG’s clean balance sheet, net cash of $40-million, and no debt as giving it ample room to pursue inorganic growth.

Following strong results in the third quarter, Ezzat said CMG is positioned to keep compounding returns even amid global energy uncertainty and customer price sensitivity. “CMG delivered solid Q3/F25 results,” he wrote. “We were looking for a rebound in Reservoir & Production Solutions (legacy CMG) recurring sales following the previous quarter’s disappointing print – and we got it.”

That said, the outlook is more mixed.

“In the letter to shareholders, management flagged increasing price sensitivity among customers and heightened uncertainty surrounding global energy transition policies,” Ezzat said. “They also noted a slowdown in decision-making at many organizations.”

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