Why I sold $CMG.to
Some lessons I learn quickly, some not so much. Despite my age, experience, network, privilege, funny memes (well funny to me at least), I still did poorly on the trade with $CMG.to (Computer Modelling Group Ltd).
I first wrote about CMG here. I sold a few weeks ago so some of the data is a tad dated.
I never intended to hold $CMG.to long term. Activity was returning to O&G and investors has slowly come around to the idea that hydrocarbons can belong in their investment portfolios. Let’s do a quick debrief on the trade.
Absolute Performance
My average purchase price was $4.65. I sold between $4.95 and $5. Throw in the dividend and call it a 7-8% return in absolute terms. It’s actually not that bad for holding for about 5 months.
Relative Performance
Here’s where it gets interesting. Compare the above to the TSX or TSX 60 which were about flat to -3% for the same period. So one could say I outperformed my benchmark. I don’t think that’s fair.
I took a top down bet on a specific part of the market. I think comparing to iShares S&P/TSX Capped Energy Index ETF ($XEG.to) is fair. XEG added 35% in the same time.
As well I should be comparing to other companies that I could have purchased with the same top down approach. The following companies I have followed for a long enough to get comfortable to purchase them at any moment. These are not peers to CMG, but other possible areas to deploy capital where I do not have a position already.
Other than HWO, all others outperformed my choice in CMG. This is pretty disappointing. Many of these were at or near 52 week highs at the time and still trading at a discount to prior cycle ebitda multiples. I knew this and yet I didn’t pull the trigger.
Overall Thoughts
Why didn’t CMG move as much as some of the others? I can think of a few reasons:
The business does not have the same leverage to activity levels as many of the others
Valuation headwind
I would rate my trade in CMG as a C- or maybe a D+. I had the right idea but picked the less than optimal horse. I managed to protect my capital from some larger drawdowns, but missed out on a bunch of upside. CMG is not some 10 mil microcap that needed company specific news to trade higher, I expected it to trade higher with the price of oil. When I make a top down bet I do expect some of the positions to underperform. Having said that, I knew going in that CMG had limited torque to upside activity.
Hopefully this was helpful to someone.
Thanks,
Dean
*no position in $CMG.to
Agreed that the upside torque to energy has been disappointing so far. CEO change is interesting and seems to confirm that this is to be thought of more as a software business than a play on energy.
Perhaps it’s not the greatest vehicle to express bullishness on energy (which to a certain extend makes my question my investment in pulse seismic).
The performance is a bit of a head scratcher because in theory it has what it takes to be a good investment: asset light, requires little reinvestment back into the business, duopoly industry etc. and I still wonder if at some point or price it will make sense.
I do find the capital allocation questionable (I.e. their love for dividend vs buyback, building new headquarters etc)