Valued at a market cap of $421 million, Laptop Modelling Group (TSX:CMG) is a software program and consulting firm specializing in reservoir simulation and seismic interpretation software program for the oil and fuel business.
CMG develops instruments for modelling oil restoration processes, thermal restoration, compositional evaluation, and unconventional reservoirs. It additionally offers skilled providers, together with consulting, coaching, and analysis assist, to shoppers globally.
CMG inventory is down 55% from its all-time excessive, permitting you to purchase the dip and profit from outsized positive aspects when sentiment recovers. Let’s see in the event you ought to personal this oversold TSX tech inventory proper now.
Is CMG inventory an excellent purchase as we speak?
Laptop Modelling Group reported blended second-quarter (Q2) outcomes because the software program firm navigates a difficult atmosphere marked by unstable power markets and cautious buyer spending.
Income in fiscal Q2 (led to September) rose 2% yr over yr to $30.2 million. Its core recurring income enterprise grew gross sales by 13% to $20.7 million, pushed by acquisitions. Nonetheless, natural gross sales have been down 17% yr over yr, because the oil and fuel sector continued to cut back spending amid decrease costs. Its perpetual software program license enterprise additionally declined by 56% as firms delayed new expertise investments.
CMG reported an adjusted EBITDA (earnings earlier than curiosity, tax, depreciation, and amortization) of $7.6 million, down 25% yr over yr. Furthermore, its margin narrowed from 34% to 25% over the past 12 months.
CMG attributed rising working bills and decrease income from its higher-margin reservoir and manufacturing options enterprise to decrease margins. Earnings per share fell 40% to simply $0.03 in Q2, whereas free money stream plunged by 68% to $2 million because of increased capital spending.
Laptop Modelling Group closed its third acquisition through the quarter, buying SeisWare Worldwide to strengthen seismic software program choices. It lately introduced a serious win with Shell for a multi-year licensing settlement masking its simulation software program suite, together with the CoFlowTM platform. This deal represents the payoff from a long-term product growth relationship.
Administration expects enterprise to select up within the second half of the fiscal yr as seasonal contract renewals kick in. The corporate tasks natural recurring income will flip constructive within the fourth quarter and keep constructive by means of fiscal 2027. To fund extra acquisitions and enhance its monetary flexibility, Laptop Modelling Group lately closed a $100 million credit score facility.
The board additionally accepted a quarterly dividend of $0.01 per share, down from $0.05 within the year-ago interval. The corporate launched a share-buyback program as administrators imagine the inventory doesn’t mirror the enterprise’s underlying worth.
Whereas near-term headwinds persist from weak power markets and prolonged gross sales cycles, administration expects development to return as buyer spending normalizes.
Is that this TSX tech inventory undervalued?
Traders are rightfully apprehensive about CMG’s declining revenue margins, declining gross sales, and a dividend minimize. Nonetheless, Bay Road estimates that the TSX tech inventory will improve income from $127.4 million in fiscal 2026 to $247 million in fiscal 2030. On this interval, free money stream (FCF) is projected to enhance from $28.5 million to $86 million.
As we speak, CMG pays shareholders an annual dividend of $0.04 per share, which interprets to a yield of 0.8%. Given its excellent share depend, CMG’s annual dividend expense is round $3.3 million, indicating a payout ratio of lower than 12%.
If CMG inventory is priced at 10 occasions ahead FCF, which is cheap, it might surge 100% over the subsequent 45 months. Analysts stay bullish on CMG, anticipating it to achieve 40% from present ranges, given consensus value targets.
