CGI Group has passed BlackBerry, but is still undervalued, says Garcea

Global Maxfin analyst Ralph Garcea says Canada’s largest tech still has lots of room to grow.

The story of Research in Motion’s fall from grace and tempered revival under a new name has, for those outside our country, been the story of Canadian tech for some time.

But lost in the din of the BlackBerry blues has been CGI Group (CGI Group Stock Quote, Chart, News: TSX:GIB.A), which grasped the title of Canada’s most valuable tech from the Waterloo smartphone maker’s faltering hands and doesn’t appear ready to relinquish it.

Garcea says last year’s acquisition of U.K.-based Logica has transformed CGI into a true global player. He says the company is on solid footing with a worldwide footprint and a diversified backlog. The Global Maxfin Capital analyst says the company’s new leverage puts it in a different class, one that he thinks will drive it $10.8B in revenue and $1.9B in EBITDA over the next three years. In a report to clients yesterday, Garcea initiated coverage of CGI Group with a STRONG BUY rating and $43 one-year target.

CGI closed the $3.3-billion acquisition of London-based IT company Logica last August. The Montreal-based company is now one of the largest independent information technology (IT) and business process services firm in the world, employing 69,000 people.

Garcea says it will be very difficult for CGI to penetrate the Top 5 global IT services players, which consist of IBM Global Services, Accenture, Fujitsu, HP/EDS, and Computer Sciences Corp. But he says the company could become an attractive takeover target for one of these companies. He notes that CGI is currently trading in line with its global peers, but could soon see higher EBITDA growth and an increase in ROE from the Logica acquisition.

At press time, shares of CGI Group on the TSX were up 1.3% to $32.16.