Saturday, January 15, 2011

Computer Modelling Group ( Toronto - CMG ) -- Follow-up Report

Computer Modelling Group (CMG $25.00) appears on track to report excellent on target Q3 (December) results.  The company is the leading provider of simulation software used by energy producers to exploit heavy oil, tar sand, and other complicated reserves.  Computer Modelling is gaining market share from Schlumberger, which still leads in the conventional market, because most of the easy to produce oil already has been found.  New discoveries are increasingly complex and require the company's high performance software.  Demand is rising across the board in response to escalating petroleum prices, which recently climbed above $90 a barrel.  Anything higher than $75 per barrel generally causes the pace of exploration to gain momentum.  Business remains vibrant in Computer Modelling's established markets.  The company has started to penetrate new accounts, as well, which used to rely exclusively on Schlumberger or their own internal technologies.  Geographic expansion is materializing, too, in response to beefed up marketing efforts.  Schlumberger has not responded with competitive high end products yet, and it appears that a major development effort is not underway.  Start-up competition has not emerged, either, and the likelihood of anyone new catching up at this point has become a dim prospect.  Computer Modelling is applying the finishing touches on a more comprehensive next generation system, which promises to lengthen its competitive lead after it is commercially introduced, perhaps as early as 2012.  Meantime, orders are pouring in as the energy industry prepares for a sustained increase in petroleum demand as the Third World matures over the next few decades.  Income is poised to keep rising at a fast pace.  Much of that is likely to be paid out as cash dividends, moreover, providing shareholders with a superior return comprised of both income and appreciation.

( Click on Table to Enlarge. )