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CriticalControl boasts long term growth potential, says Industrial Alliance Securities

CriticalControl Solutions (TSE:CCZ) is expected to post higher earnings and revenue when it reports fiscal fourth quarter results after market close today, with the company to benefit from strategic divestitures and acquisitions in the long term, according to analysts at Industrial Alliance Securities. 

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CriticalControl Solutions (TSE:CCZ) is expected to post higher earnings and revenue when it reports fiscal fourth quarter results after market close today, with the company to benefit from strategic divestitures and acquisitions in the long term, according to analysts at Industrial Alliance Securities. 

The brokerage expects the Canadian information management services provider to report adjusted net income of $0.9 million, or 2 cents per share, up from $0.5 million, or 1 cent per share, in the same period a year earlier.

Revenues are anticipated to rise 10.4 percent year-over-year to $12.4 million, with $8.2 million to come from the energy services division. Gross profit margin is also expected to increase to 37.3 percent from 34.4 percent in the fourth quarter of fiscal 2013, helped by product mix as well as margin expansion from the service bureau and energy service segments.

The company, which operates in two main verticals of government and energy services, sold two of its non-energy service business lines after the end of the fourth quarter, for $2.7 million. 

Industrial Alliance analyst Steve Li said in a research note released Wednesday that both sales give the company "supplemental flexibility to reorganize their resources and pursue further growth in their core energy services business."

CriticalControl also recently signed a definitive deal to acquire certain assets from Legacy Measurement Solutions for $2.0 million, which is expected to help bolster its presence in the U.S. 

These assets are related to gas charts interpretation, gas and liquids analysis and measurement related field services, Industrial Alliance said. CriticalControl's energy services unit provides production data management to natural gas producers. 

"The company’s strategic divestitures and acquisitions will allow them to be better positioned for long-term growth as the energy sector reverses its trend," said analyst Li, who has a speculative buy rating and $1.00 price target on the stock.

Aside from a bigger presence in the U.S., the latest acquisition will also help CriticalControl cross-sell its solutions to Legacy's customers, while also benefiting from cost synergies, especially in the processing of the gas charts business, noted Industrial Alliance.

The transaction is also accretive, according to management. "While the business environment looks challenging, due to CAPEX reduction from E&Ps, we are optimistic about the company’s long-term opportunities," said Li.

Shares of CriticalControl closed at 30 cents in Toronto on Tuesday, down some 33 percent over the past 12 months.

Quick facts: CriticalControl Solutions

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TSX:CCZ
Market: TSX
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