Computer Modelling Group Ltd. (TSX: CMG), is a technology company, that develops and licenses reservoir simulation software in Canada and internationally. Its product offerings include CMOST-AL, IMEX, STARS, GEM, Builder, CoFlow, and WinProp.

Key Highlights

• Dividend declaration: On Feb. 09, 2022, the Company announced a dividend of CAD0.05 per Common Share. The dividend will be paid on March 15, 2022, to shareholders of record at the close of business on March 7, 2022.

• Increase in Revenue: The company reported an increase in revenue by 6% to CAD 17.04 million for the Q3FY22 as compared to the revenues of CAD 16.03 million for Q3FY21. The jump was reported because of the increase in both professional services revenue and software license revenue.

Source: Company financials

• Higher margins profile v/s Industry: In Q3 FY22, the company outperformed the Industry median on the operational front by reporting an EBITDA margin of 48.8%  as compared to the industry median of 13.1%. For a similar period, the Net Margin of the company was 36.6% vs the industry median of Negative 1.8%.

Source: REFINITIV, Analysis by Kalkine Group

• Lower valuations: The stock is trading at a relatively lower valuation in terms of Price/ Cash Flow multiple of 12.4x compared to the industry (Technology) median of 17.9 and on NTM Enterprise Value/ Earnings Before Interest Depreciation & Amortization (EBITDA) multiple it's trading at 8.8x against an industry median of 10.9x. These lower valuations give much of the headroom for the stock to catch up with the industry median.

Source: REFINITIV, Analysis by Kalkine Group 

Valuation Methodology (Illustrative): Price to Cash Flow

Analysis by Kalkine Group

Stock recommendation

The company delivered negative gains of 18.43% in the past three months and a positive return of 5.79% in the past six months. For the recent quarter eneded, the company clocked an impressive growth in Perpetual license revenue by CAD 0.8 million or 127% as compared to previous quarter. Further, the company reported an increase in deferred revenue balance for the Q3FY22 by 50% to CAD 23.05 million when its compared with Q3FY21.

The stock moved in a very volatile range and after touching the highs of CAD 6.74 on February 9, 2021, it declined eventually and found support around CAD 3.85 levels. From there some buying action could be witnessed in the stock and since then the prices are moving in a broad range of CAD 5.7 – CAD 4 levels. Off late, the prices inched above the 50 DMA, giving the much-needed support to the stock prices and further uptrend could be evaluated when the stock pierces the 200 DMA which is currently pointing at CAD 4.77 levels.

Considering the cheap valuations, on Price to Cash Flow multiples, favorable technical chart pattern, and the volatility in the stock prices, we recommend a “Speculative Buy” rating on the stock at the closing price of CAD 4.38, as on February 9, 2022.

1-Year Price Chart (as on February 9, 2022). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.