Cormark analyst Richard Tse says synergies from CGI Group’s (TSX:GIB.A) acquisition of Logica will continue to have a positive impact on the company.
Yesterday, CGI Group reported its Q4 and fiscal 2014 results. The company’s fourth quarter topline spiked nearly 53% to $2.5-billion.
Tse says the quarter was stronger than he expected, particularly in terms of margins. CGI reported fourth quarter EPS of $0.67, besting the Cormark analyst’s expectation of $0.64 and the street consensus of $0.62.
Tse, noting that CGI has compressed its timeline on the Logica integration from three years to two, points out that the company’s EBIT margin outside of North America has already increased to 10.9%, from negative 2.9% last year. The real question, he says, is whether those initial cost synergies have staying power. He believes there will be another leg up for CGI Group that will be driven by top line revenue and booking synergies.
The Cormark analyst says another positive factor for CGI Group is that the European backdrop for IT services spending is improving. He points out that the company’s bookings of $2.8-billion were much higher than his expectation of $1.8-2.0-billion.
In a research update to clients this morning, Tse maintained his BUY recommendation on CGI Group, but raised his one-year target price to $45.00 from his previous $42.00.