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What are you buying today?


LowIQinvestor

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CMG.to    Computer Modelling Group

 

Interesting company and nicely profitable, but revenues went nowhere for a couple of years, due to the mamaise in the E&P sector. They are paying a dividend in excess of earnings and sort of paying with this in shares (proceeds from stock option exercises). Looks like a bet on E&P recovery or possibly a takeout.

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I've nibbled at cmg lately. Big operating leverage there to upside (new drilling = more reservoir engineers = more licenses at very high contribution margin). Less downside than producing companies.

 

Great management. The folks there are pretty much all geniuses. One thing that really struck me when I visited was that a huge number of staff were eating their lunch together in the lunch room. That is super uncommon in Calgary's oil industry (this was 3-4 years ago). That people brought lunch and then ate it together isn't something I'd seen culture wise. Thought it was interesting.

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Thanks to  Spekulatius and bizaro86 for your thoughts.

My reason for buying are:

1. Very large intellectual moat

2. Long term view in terms of continued spending on R/D

3. New CoFlow product released (after years of development), potential new source of revenue

4. Recent insider buying at higher than current prices

 

 

 

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Thanks for thoughts on CMG.TO. I think the only odd thing I found is the dividend bing higher than the earnings, while at the same time, they have a lot of cash on their balance sheet and the SharePoint creeps up due to dilution from stock based compensation.

It’s a pretty interesting way to play a recovery in the E&P sector wth way less risk than owning an E&P outright. Thanks for posting.

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Even if you take out all cash and slash R&D to 0$ you just get a yield of 7-8% for a no growth company. Doesn`t look very compelling right now to me and i doubt that it is a good aquisition target at an EV/EBITDA of 16. I mean FB or GOOGL grow at >15% per year and trade at similar multiples and are probably less risky. But thanks for posting the idea, it might be interesting below 4$.

What are their competitors?

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Even if you take out all cash and slash R&D to 0$ you just get a yield of 7-8% for a no growth company. Doesn`t look very compelling right now to me and i doubt that it is a good aquisition target at an EV/EBITDA of 16. I mean FB or GOOGL grow at >15% per year and trade at similar multiples and are probably less risky. But thanks for posting the idea, it might be interesting below 4$.

What are their competitors?

 

CLB

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I'm pretty sure CLB provides reservoir characterization services as opposed to liscencing simulation software.

 

The 900 lb gorilla in the industry is Eclipse, which is owned by Schlumberger. I like that you're competing against a small non-core division of a mega-cap.

 

Also, I've used both and the CMG suite is WAY easier to learn than eclipse.

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I bought some Arrow Exploration (AXL.V). It’s an oil producer in Colombia that emerged from reverse takeover / spin off from CNE.TO in November.

 

Given it’s a micro cap spinoff there could be some irrational selling going on.

 

Each Canacol share received .127 shares of AXL, so it’s a trivial amount for what is now a 35 cent stock. CNE shares trade at $4.40.

 

CNE valued each AXL share at US$0.885 each at the time of the spin and it’s trading so it’s down about 70% from that level in less than 6 months. Perhaps they were optimistic in how they valued it but it certainly has taken a haircut now.

 

Management owns 18% and cannot sell the majority shares for 18 months and the stock has to be above US$1.50.

 

EV is less than C$30m with 2P NPV at C$125m and the company is producing 1500 boe/d now and guiding to exit at 3000 boe/d. It’s production is tied to Brent pricing so it looks cheap on traditional oil company metrics.

 

 

 

 

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