A $300-million stock buyback isn’t likely to dampen the enthusiasm of CGI Group (TSX:GIB.A, NYSE:GIB) for acquisitions, says Canaccord Genuity analyst Robert Young.
On Thursday, CGI Group announced it intends to repurchase 4.85-million of its shares held by Caisse de depot, which would be left with about 46.2-million shares, or 16 per cent of CGI.
“This transaction is immediately accretive and consistent with our value-creation strategy, prioritizing the use of cash based on the highest-return opportunities,” said CGI CEO George D. Schindler. “We remain very well positioned to continue executing our build-and-buy profitable growth strategy through our strong cash flow generation and access to our credit facility.”
Young says CGI isn’t faced with the choice to do M&A or stock buyback, it has the balance sheet to do both.
“We have noted previously that CGI would continue to repurchase shares in the event of low acquisition activity, and has the ability to repurchase an additional 7.5M shares under its active NCIB which expires in February 2018,” the analyst says. “As the repurchase comes at the end of Q4/F17 the impact to our F2017 estimates is negligible, though modestly accretive to our F2018 EPS estimates. While the share repurchase reduces CGI’s capital available to fund acquisitions, we expect it will remain active on M&A, having executed on six tuck-in acquisitions over the last six quarters, supported by balance sheet flexibility, actively managed engagements, and targets in every strategic business unit. Larger transformational M&A remains a strategic priority.”
In a research update to clients Friday, Young maintained his “Buy” rating and one-year price target of $(C) $74.00 on CGI Group, implying a return of 17.5 per cent at the time of publication.
Young thinks CGI Group will post EBITDA of $1.95-billion on revenue of $10.9-billion in fiscal 2017. He expects those numbers will improve to EBITDA of $1.96-billion on a topline of $11.3-billion the following year.