Michelin renewal a material win for CGI Group, says Cantor’s Kew

Two recent contract wins underline the value in CGI Group (TSX:GIB), says Cantor Fitzgerald analyst Justin Kew.

This morning, CGI announced it had been selected by Michelin as preferred partner for all its procurement, marketing, sales and corporate finance applications and their development. The efforts will support new product launches at Michelin and accelerate existing ones.

Jean-Michel Baticle, President of CGI – France, Luxembourg and Morocco characterized the deal.

“As a partner for the past 28 years, Michelin is renewing its confidence in CGI through the awarding of this strategic contract, ” he said. “We are proud to be supporting Michelin in the pursuit of its objectives.”

Kew says the Michelin renewal is “material” and estimates that the contract is likely five to six years in length and in the “low triple-digit million dollars” in scale. He thinks it will be included in the company’s Q3, adding to the more than $20-billion backlog the company currently has.

Also this morning, CGI announced that it had signed an agreement with Volvo to provide the Swedish auto maker with authentication certificate services that will supply each car with individual and securely accessed online services. Kew estimates that this contract is smaller than the Michelin deal, likely “single-digit million dollars in scale.

In a research update to clients this morning, Kew maintained his “Buy” recommendation and (C)$46.00 one-year target price, implying a return of 21% at the time of publication.

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