Alex Cutulenco | Ubika Research Analyst | March 17, 2016: With a market cap of $800 million, and a 1-year return of -11%, we think the stock has become a great dividend story with likely upside when the oil market picks up again. Here’s why:
CMG resilient during down markets
One of the most interesting traits facing CMG, is that a downturn in oil prices has a flattening effect on its revenues, as opposed to lowering them. Seen in the Figure below, the oil down market of 2008 stalled CMG’s revenues for the following year; just like a downturn in 2014-2015.
Throughout this tenure, the Company grew at a 10-year CAGR of ~18%, showing EBITDA margins of ~50%, and effectively paying out all income in dividends. And we think, this revenue growth will only see a boost from now.
OPEC wants prices to rise again
OPEC and other major oil producers have decided to meet on April 17, in an attempt to agree on an output freeze. Following its success last month when Saudi Arabia, Russia, Qatar and Venezuela halted production at January levels, the group will attempt to bring other large producing countries on board as well. The freeze has already had a material impact on oil prices, with Brent June/16 deliveries moving past the $40/bbl level.
This initiative is definitely positive, not only for oil producers and explorers, but also oil servicing companies such as CMG. We think that a potential rise in oil prices gives hope to the O&G producers, and concurrently, lets them increase their Opex and Capex levels.
As can be seen by US EIA’s chart below, global supply has already started its downward trend in an effort to curb the excess in oil.
For investors, a potential rise in oil is only an upside
The real treat with this resilient Company, is its steady dividend. Now standing at an annualized $0.40/share, this equates to a 3.8% yield.
We think the long track record of increased dividend payments, coupled with a strong balance sheet and good operating performance, should give investors comfort over the foreseeable future.
Alex can be reach at: email@example.com