CGI Group has laid concerns about Logica integration to rest, says Cormark

Cormark analyst Richard Tse says CGI Group (CGI Group Stock Quote, Chart, News: TSX:GIB.A) has laid a lot of doubt about its Logica acquisition to rest.

Yesterday, before market open, CGI reported its Q2, 2013 numbers. The company earned $114.2-million on revenue of $2.53-billion, a topline that was up 137% year-over-year.

CEO Michael Roach said the massive integration task (Logica was, in fact, larger than CGI at the time of acquisition) is well underway.

“I am very pleased with our overall performance and with the excellent progress we have achieved in restructuring and transforming our European and Asia Pacific operations,” he said. “Working closely with our clients and our professionals we are seeing the business benefits of implementing our operating model as we trend to the upper end of our fiscal 2013 EPS accretion commitment of 25 to 30 per cent before integration costs. We continue to identify and action opportunities to bring incremental value to our stakeholders.”

Cormark analysts Richard Tse says despite CGI’s successful track record in acquiring and integrating companies, some still had doubts that the Montreal-based company could do it successfully with Logica, which was the largest acquisition in its 37-year history.

That notion, he says, should be a thing of the past now that CGI has increased its synergy targets from $300-million to $375-million and adjusted its accretion targets to the upper end of its previously announced 25-30% guidance. In a research update to clients this morning, Tse reiterated his BUY rating, and $35.00 one-year target on CGI Group.

Tse says the acquisition of Logica, which he says was a “contrarian” acquisition now looks like it will be the value creator that will drive the next upward leg for the stock. He says CGI remains attractively valued, especially considering that estimates don’t reflect the full impact of Logica, with revenue synergies. He notes that on an earnings basis the company is still trading below its peer group P/E average of 16x.

Shares of CGI Group on the TSX closed today down .2% to $31.83.