Cantor’s Kew: Q1 Doesn’t Change my Bullish view of CGI Group

After reporting its Q1, 2014 results shares of CGI Group (TSX:GIB.A) dipped today, but Cantor Fitzgerald analyst Justin Kew says his view on the company’s fundamentals hasn’t changed.

CGI reported net earnings of $189.8-million or $0.60 a share on revenue of $2.6-billion. Kew had been expecting EPS of $0.71 on revenue of $2.6-billion.

“We delivered very solid performance in the quarter as we continued to leverage our expanded global scale and capabilities to the benefit of our clients and investors,” said CEO Michael Roach. “We are well positioned to grow as the market gradually improves as demonstrated by our strong bookings of $2.8 billion in the quarter, which was balanced across all geographies and was composed of 45% new business.”

Kew says EBIT was lower than expected because of the investment required to build CGI’s pipeline and seasonality issues. Noting that cash flow from operations dipped from $204.5-million in last year’s Q1 to $119.6-million this year, the Cantor Fitzgerald analyst says the finger can be pointed at the DSOs (days sales were outstanding) which climbed to fifty-five days. He says this issue is a “transient” one and expects DSOs will soon return to management’s target of forty-five days.

Kew says his confidence in CGI Group comes from growing momentum in its pipeline that he believes will translate into expanded revenue and EBIT. He believes the company will return to pre-Logica levels of 13% EBIT margins by fiscal 2015.

In a research update maintained his BUY recommendation and $46.00 one-year target on CGI Group. Shares of CGI on the TSX today closed down 5% to $33.47.