Computer Modelling Group is a leading software technology company that focuses on advanced process reservoir modeling software. It provides consulting, support, training, and contract research services to the oil and gas industry.
From humble beginnings as a small research company based in Calgary in 1978, CMG has today become the leading supplier of advanced processes reservoir modeling software in the world. The company is known for its expertise in heavy oil, reservoir flow, and advanced processes modeling.
The company has extensive R&D facilities. The majority of Computer Modellings’ revenues consist of software license (annuity/ maintenance and perpetual license revenue) revenue (accounting for ~90%), followed by professional revenues. Canada (22% of revenues), the USA (26%), South America (12%), and the Eastern Hemisphere (~40%) are its major markets.
- Opportunity Score: 40
- Ticker: TSE:CMG
- Sector: Technology
- Industry: Software Application
- Market Cap: 0.44B
- P/E: 19.22
- Dividend Yield: 3.65%
- Payout Ratio (Earnings): 68.97%
- Canadian Dividend Aristocrat: NO
- Chowder Score: Members Only
- Revenue Growth: Members Only
- Dividend Growth: Members Only
- Dividend Growth Fit: 1/10
- Dividend Income Fit: 4/10
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Revenue Growth & Market Exposure
Computer Modelling is a leading supplier of advanced process reservoir modeling software with a diverse customer base of more than 600 international oil companies and technology centers in 60 countries. CMG’s revenue is comprised of software license sales, which provide the majority of the company’s revenue (~90%), and fees for professional services.
Software license revenue is made up of annuity/maintenance license fees charged for the use of its software products, which is generally for a term of one year or less, whereas in perpetual software license sales a customer purchases the software for perpetuity. The annuity/maintenance license fees have a high renewal rate and provide a reliable revenue stream.
Computer Modelling has a strong customer focus and has over the years, understood changing customer needs and priorities. The company is known for offering technical solutions that enable its customers to build models accurately and reliably. CMG has more than 38 years of dedicated reservoir simulation software development experience and has developed strong expertise in reservoir flow and advanced process modeling.
CMG reinvests 20% of its annual revenue back into R&D, which drives advanced reservoir simulation technology. It is at the forefront of simulating new recovery methods. The company has partnered with Shell and Petroleo Brasileiro to develop CoFlow, which is the newest generation of reservoir and production system simulation software.
As the leader in enhanced oil recovery simulation, Computer Modelling offers solutions to its customers that maximizes production from their oil and gas reservoirs. It is recognized by oil and gas companies worldwide as a leading developer of reservoir modeling software. Its easy-to-use products, plug-and-play modules, and workflows further add to customer convenience.
The decrease in global energy demand and the uncertainty around COVID-19 have adversely impacted the demand for CMG’s products. Total revenues decreased by 12% with annuity/maintenance license revenue declining by 14% and perpetual revenue falling by 26% in the last nine months. Since Computer Modelling is a technology-based company, it quickly adapted customer training to online platforms. The company’s revenue has grown at a rate of more than 5% CAGR in the last decade.
Computer Modelling sports an attractive dividend yield of 3.4% and a dividend payout ratio of 68%. It has grown its dividend at a rate of more than 9%+ CAGR in the last decade. CMG’s board slashed its quarterly dividend by 50%, from $0.10 per share to $0.05 per share, in June 2020 in order to preserve liquidity and balance sheet strength. On December 31, 2020, CMG had $39 million in cash, no borrowings, and access to ~$1 million under a line of credit. The company took pre-emptive actions to minimize the negative impact of the COVID-19 pandemic by reducing staff salaries.
The increasing digitization trend in the oil and gas and energy sectors acts as a growth driver for the demand for E&P applications. The global E&P Software market is projected to grow tremendously over 2019-2025. CMG is a leading E&P software company globally. CMG’s annuity/maintenance license fees provide a regular stream of cash flow and most of its customers who purchase perpetual software licenses subsequently buy CMG’s maintenance package for ongoing product support. Customers also enter multi-year contracts with the company.
The company is expanding its global reach. It has a sound track record of completing more than 500 consulting projects for over 200 customers in every country of the world. A blue-chip client base of international oil and gas companies and a wide global footprint are its strong competitive advantages.
Computer Modelling is well-positioned to grow long-term value for shareholders through continued investment in research and development as it offers solutions to complex client problems related to new advanced recovery processes.
The reservoir simulation software industry currently consists of two major suppliers (including CMG) and several small suppliers. Computer Modelling competes with Constellation Software which is a leading global provider of software and services and caters to both public and private clients.
Another leading competitor is Pason Systems Corp. There is a significant barrier for new entrants into the reservoir simulation software industry. It will be difficult for newcomers to replicate CMG’s quality relationships with potential customers, proven technology, and comprehensive scope of products.
The prolonged continuance of the COVID19 pandemic could adversely impact CMG’s operations.
However, progress in the development and distribution of the COVID-19 vaccine and favorable fundamentals for the demand for CMG’s reservoir simulation software should act as tailwinds for the company.
Its reservoir software stands a chance to gain more popularity as companies strive to optimize their production in current times. The company has been witnessing increasing support requests, training activity, and commercial customers running models related to CO2 enhanced recovery, carbon sequestration, and geothermal projects.