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