COMPUTER MODELLING GROUP $18.53 - Toronto symbol CMG

COMPUTER MODELLING GROUP $18.53 (Toronto symbol CMG; TSINetwork Rating: Speculative) (403-531-1300; www.cmgroup.com; Shares outstanding: 37.4 million; Market cap: $693.0 million; Dividend yield: 4.0%) sells consulting services and software that help oil and gas producers get more out of their existing wells. Computer Modelling has clients in over 50 countries.

In the three months ended June 30, 2012, the company’s revenue rose 3.3%, to $16.5 million from $15.9 million a year earlier. An increase in software licence sales more than offset a drop in consulting and professional services revenue. (It consulted on some large one-time projects in the year-earlier quarter.)

Earnings fell 8.6%, to $6.1 million, or $0.16 a share, from $6.7 million, or $0.18 a share. The company hired new employees to handle its growing business. That meant it also had to acquire more office space, computers, furniture and fixtures. It now has 164 employees, up from 144 a year ago.

Computer Modelling holds cash of $47.6 million, or $1.26 a share, and has no debt. It spent $2.7 million, or 17.3% of its revenue, on research in the latest quarter. The stock yields 4.0%.

The company makes mostly recurring revenue from software licences and maintenance contracts for its products. That gives it long-term stability.

Computer Modelling is already a leader in complex heavy oil and oil sands simulations. It should profit further as producers continue to develop other unconventional sources, like shale gas and coalbed methane.

Computer Modelling Group is a buy.

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