Cormark raises target on CGI Group to $35

Having covered CGI Group for more than a decade, Richard Tse says he has been impressed with the way the company has integrated and derived value from acquisitions. He believes CGI can do the same with Logica, partly because the “soft European backdrop” was priced into the acquisition.

This past summer, Canadian tech saw a changing of the guard as both Catamaran (TSX:CCT) and CGI Group (TSX:GIB.A) passed Research in Motion in the race to be Canada’s most valuable technology stock.

While the recent resurgence of RIM has pressed it past CGI and into second spot, all eyes will be on the Montreal-based IT player this Wednesday when it reports its fourth quarter results, which will be the first to include results -if only six weeks worth -of its massive acquisition of UK-based Logica Plc.

Cormark analyst Richard Tse says the integration of Logica will, without doubt, dominate the conversation around CGI Group this week. He believes, however, that this unrelenting focus is distorting the attributes of the entire business going forward, which he sees as having more in common with North American comparables such as Accenture rather than European companies such as Atos Origin or Cap Gemini.

Tse says he believes CGI is on track to achieve its 25-30% accretion targets in fiscal 2013. In a research update to clients today, he bumped his 2013 earnings estimate from $1.73 to $2.15, which caused him to raise his target price on the stock to $35 from $30. Tse maintained his BUY rating on CGI Group.

CGI Group was founded in Montreal in 1976. The Company’s name is an acronym for Consultants to Government and Industry. Midway through 2010, CGI picked up Stanley, an Arlington, Virginia based systems integrator for a billion dollars. But the company was just getting started; on August 20th, CGI completed the largest acquisition in its history, picking up London-based Logica Plc, a company that was actually larger CGI, for $2.64-billion. CGI Group now ranks as the sixth largest independent information technology and business process services firm in the world.

Having covered CGI Group for more than a decade, Tse says he has been impressed with the way the company has integrated and derived value from acquisitions. He believes CGI can do the same with Logica, partly because the “soft European backdrop” was priced into the acquisition.

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