Tech stocks lost their appeal in 2022 due to runaway inflation, rising interest rates, and a looming recession. Investors ditched growth-oriented companies for fear of slower growth during uncertain times. But with inflation trending downward after reaching its peak, a major tech rebound in 2023 is on the horizon.
The resurgence is evident in the stock market, where technology is the top performer among 11 primary sectors thus far this year. As of this writing, the year-to-date gain is 33.4% compared to the TSX’s 6%-plus. Some market analysts say the recovery from last year’s pullback is a buy signal.
An exciting prospect to own before the bull market starts is Computer Modelling Group Ltd. (TSX:CMG). Current investors are glad they have a rare gem in their portfolios. At $7.48 per share, the year-to-date gain and one-year price return are 29.2% and 57.9%, respectively. The $602.2 million computer software technology and consulting company also pays a decent 2.62% dividend.
Niche player with a blue-chip client base
Many tech investors worry about paying more than what the stocks are worth. The case with CMG is different because it’s a niche player, and no other company provides sophisticated software for the oil and gas industry. Large energy companies and top technology centres in 61 countries are among its blue-chip client base and still expanding.
The Calgary-based firm develops reservoir modelling software and provides sales and technical support services. Because the reservoir simulation software allows oil and gas companies to find precise drilling locations, they can maximize production from their reservoirs. Today, CMG’s software technology is the leader in enhanced oil recovery simulation.
Consistent growth
The financial results after three quarters in fiscal 2023 indicate a thriving and resilient business model. In the nine months that ended December 31, 2022, total revenue and net income rose 13% and 8% to $53.6 million and $6.4 million, respectively, versus the same period in fiscal 2022. In Q3 fiscal 2023, total revenue and free cash flow (FCF) climbed 14% and 21.2% year over year to $15.5 million and $7.5 million, respectively.
Pramod Jain, CMG’s CEO, said the quarterly revenue increase represents the fifth consecutive period of growth. He adds that approximately 15% and 13% of total software revenue in Q3 and year-to-date fiscal 2023, respectively, came from energy transition projects. Jain also notes the heightened interest in CMG’s technology for use in carbon capture projects in the U.S. and European markets.
Technology of choice
Management is ready to capitalize on the market demand for its simulators in the energy transition market. CMG aims to become the technology of choice in carbon capture and storage (CCS) and other energy transition projects. The industry needs CMG’s specialized, multidisciplinary knowledge to solve the complex problems related to CO2 reduction goals.
Jain said, “As energy companies transition to a more diverse energy mix and invest in new technologies, they are increasingly relying on technology to drive strategic decisions.” CMG commits to supporting its customers in safely meeting global CO2 reduction goals for a cleaner, sustainable future.
Long-term play
CMG is an attractive long-term play and an ideal option if you want lower-volatility investments in the oil and gas sector. Since most company revenues are recurring, dividends should be safe and sustainable, with plenty of room to grow.
