CGI GROUP INC. $31 (Toronto symbol GIB.A; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 309.3 million; Market cap: $9.6 billion; Price-to-sales ratio: 1.5; No dividends paid; TSINetwork Rating: Extra Risk; www.cgi.com) is Canada’s largest provider of computer outsourcing services. CGI helps its clients automate routine functions, like accounting and buying supplies. That makes them more efficient and lets them focus on their main businesses.
CGI continues to profit from its August 2012 acquisition of Logica plc, a U.K.-based firm that provides computer-outsourcing services in 36 countries.
Thanks to this $2.7-billion purchase, CGI’s earnings rose 66.3% in its 2013 second quarter, which ended March 31, 2013, to $175.9 million from $105.7 million a year earlier. Due to more shares outstanding, earnings per share rose at a slower rate of 40.0%, to $0.56 from $0.40. These figures exclude unusual items, such as costs to integrate Logica.
Revenue soared 137.0%, to $2.5 billion from $1.1 billion. In addition to the contribution from Logica, CGI continues to win new contracts in the U.S. thanks to its August 2010 purchase of Stanley Inc., which sells computer-outsourcing services to government agencies. Revenue at CGI’s U.S. operations rose 17.7%.
CGI booked $2.2 billion of new contracts in the latest quarter. New clients accounted for 40% of this total; the remaining 60% came from extensions and renewals. CGI ended the quarter with an order backlog of $18.0 billion, up from $13.2 billion a year earlier.
The company borrowed most of the cash it needed to buy Logica. Even so, its $3.0 billion of long-term debt is a manageable 31% of its market cap. It also holds cash of $167.7 million, or $0.54 a share.
CGI is making good progress absorbing Logica. It now expects savings from closing overlapping operations and related moves to cut its annual costs by $375 million by the end of fiscal 2014. That’s up from its original goal of $300 million.
The company should earn $2.12 a share in fiscal 2013, and the stock trades at a reasonable 14.6 times that figure. CGI may also start paying a dividend once it finishes integrating Logica.
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