Computer Modelling hangs tough in a rough environment

       Computer Modelling (CMG) is another one of the new companies that I am watching more closely now.On May 19 it released it's  fourth quarter and annual results for 2017.The report was interesting for it's operational results as well as the clear description of  it's activities and processes.Computer Modelling develops and runs reservoir modelling software for Canadian and international oil and natural gas companies.It also does consulting and training on the use of its' software.It states that it is developing new tools, one of which is simulating the entire hydrocarbon recovery process including  the production of hydrocarbons.
          Operational Mathematics

Both CMG and producers realize that simulation is less costly than discovering and extracting oil and natural gas.Especially if the well is a dry one.And CMG is constantly improving it's simulation tools as it spends 22% of total revenues on research and development.And 90% of revenues come from licensing it's software.But Computer Modelling has been able to remain resilient when oil prices have fallen by at least 60%since 2015. It's revenues and EBITDA have only fallen by 15% since 2015.This compares to most oil service companies whose revenues have fallen by 60 to 80%.One of the reasons for this resilience is that CMG has customers in both the Eastern and Western Hemisphere.Another factor is that it gets revenues from training and consulting.              It raised 600,000 shares of equity in 2017 for proceeds of about $6 million and now has 75 million shares.This caused it's e.p.s to fall only from $.32 to $.31 per share.And it's adjusted EBITDA fell only from $37.5 to $34.5 million or less than 8%.And CMG is in a pretty solid situation as it literally has no debt on it's balance sheet.

Recommendations

Computer Modelling does have a sizeable investment in Pulse Data.This blog does not know how big it is but it could easily increase it's investment as PSD present price is fairly low.The combination would help to make their reports less of a simulation and more the exact data clients need.Also CMG has special GEM software that is used for enhanced recovery (EOR).This blog recommends that more R and D be spent here.There should be a larger market for  enhanced recovery solutions (waterflooding and other liquid solutions) with these low oil and gas prices.Lastly this blog recommends that less emphasis be put on simulation techniques and oil recovered and all reports emphasize the additional dollars that can be earned.This is after all what the client needs to know.Most of these recommendations(if followed) should increase revenues for the next quarter.If CMG tightens up it's operation this blog expects revenues of $20 million in the next quarter and being on track to hit $80 to $85 million.This will put Computer  Modelling on the path to be trading at $11 per share by Labour Day.  use Workathon for business forecasts  ;use Workathon for business forecasts  use Workathon for business consulting    

Pulse Data needs to expand it's market

               Pulse Data is a stock I have started to follow more closely just recently.It's revenues and earnings have fallen a considerable amount since 2014 and even from 2015.It's big item is it's data library sales as there is less need for precise data on the size of oil pools when the oil price is down so much.But it appears to have bottomed out and taking a positive bounce upwards.Revenues have increased by 54% -from $1.8 million to$2.7 million for the quarter.Cash EBITDA has grown from $266,000 to $1.3 million while free cash flow is up from $255,000 to $1.3 million.So it is possible that oil and natural gas producers are starting to see Pulse as a way of cutting costs in a rough pricing environment.
       Financially Speaking
  Pulse has not been  dormant however;it has purchased and cancelled 584,000 common shares at an average price of $2.41 per share.It is now debt free and in fact has cash on hand of almost $8 million.These financial metrics are good but will not bring Pulse Data back to it's 2014 price level.In order to do that it must increase it's data library sales and introduce some new products.Just as Bombardier did by developing and introducing it's CRJ 1000 seen here in this picture.Pulse needs something  of a new revenue producer.        

A Pristine Balance Sheet

           Pulse Data has what is considered to be a pristine balance sheet.It has no debt at all and it has just reduced the number of outstanding shares on it's balance sheet.But it must find a way to increase it's revenues, and hence earnings to the level in 2015.With a conventional oil play an oil producer needs to know the size of it's pool only once ( or maybe twice) but many oil plays have extended pools that are associated with the main pools.Finding extended oil pools is much less costly than discovering a new yet nearby oil pool.Also there are in certain oil or gas bearing formations several layers of hydrocarbons.In these cases Pulse must be able to zero in on the dimensions and exact location of the pools on all layers.This may make the difference between a little or a substantial profit for the producer.Not only should Pulse do this but market it so that it's client base know of this fairly new profit-producing product.
                                     Outlook for 2017         

         This blog sees Pulse Data gradually rising to the $3.00 -$3.25 area in 2017.The next two quarters will likely see increases in revenues above the level seen in this quarter.It is also true that Pulse has a considerable amount of cash on hand and an unused $30 million revolving credit facility.This blog sees that it will likely put more invested cash into it's subsidiary DCM and maybe ENT or PRW.The prices of all three subsidiaries is at historically low levels and Pulse has lots of cash.       use Workathon for business forecasts use Workathon for business consulting  use Workathon for business consulting