Whereas the broader markets are hovering close to document ranges, a number of TSX shares have fallen from their peaks in 2025. Valued at a market cap of $463 million, Pc Modelling Group (TSX:CMG) is down virtually 64% from all-time highs, permitting you to purchase the dip.
Pc Modelling Group is a software program and consulting expertise firm specializing in reservoir simulation and seismic interpretation options for the oil and fuel business. CMG develops superior software program instruments that assist engineers mannequin oil restoration processes, optimize reservoir efficiency, and forecast manufacturing in typical and unconventional reservoirs.
Is the TSX inventory purchase proper now?
Pc Modelling Group goals to pivot from a distinct segment reservoir simulation software program supplier to a diversified power expertise platform. CEO Pramod Jain outlined the corporate’s progress since launching its CMG 4.0 technique three years in the past. Jain just lately highlighted how CMG has doubled income to round $130 million whereas sustaining robust money technology from its core enterprise.
The technique facilities on three pillars: natural development within the firm’s legacy reservoir simulation enterprise, margin growth, and strategic acquisitions.
The core simulation enterprise continues to generate wholesome money circulation with adjusted EBITDA (earnings earlier than curiosity, tax, depreciation, and amortization) margins above 40% and a powerful 80% conversion to free money circulation. This money engine has funded $73 million in acquisitions over the previous two years, including $50 million in annual income with out taking up debt.
Acquisition technique
CMG has accomplished 4 acquisitions targeted on seismic information processing and interpretation, constructing what administration calls a platform method. The corporate bought Bluware, Sharp Reflections, and, most just lately, Seisware a number of weeks in the past.
These offers broaden CMG’s presence throughout the upstream oil and fuel workflow, from preliminary seismic information assortment via financial evaluation. The acquired companies sometimes function at decrease margins than the core simulation enterprise, creating alternatives for profitability enchancment as CMG applies its operational playbook.
Administration made a decisive transfer by chopping the dividend by 80% to $0.02 per share, releasing up $13 million yearly for acquisitions. Investor suggestions constantly confirmed shareholders prioritize capital deployment and returns over dividend yield. The corporate can also be establishing a credit score facility to supply extra firepower for offers.
The enterprise mannequin focuses on fixing complicated issues for engineers and scientists concerned in oil and fuel extraction, carbon seize, and enhanced restoration operations. CMG serves 450 oil and fuel firms throughout 60 nations, together with 9 of the ten supermajors. The mission-critical nature of the software program, mixed with excessive switching prices, creates important boundaries to entry.
Is that this small-cap TSX inventory undervalued?
Trying forward, CMG plans to broaden past upstream oil and fuel into midstream operations and adjoining verticals like mining and water administration, the place comparable complicated scientific issues exist.
Analysts monitoring the TSX tech inventory forecast income to extend from $109 million in 2024 to $247 million in 2029. On this interval, free money circulation is projected to develop from $35.4 million to $86 million.
If CMG inventory is priced at an inexpensive FCF a number of of 12%, it ought to double throughout the subsequent 4 years. Analysts stay bullish on the TSX inventory and forecast a acquire of virtually 40% over the following 12 months, given consensus value targets.
