CGI Group (CGI Group Stock Quote, Chart, News: TSX:GIB.A, NYSE:GIB) has the proven track record to continue on its hot streak, says Brian Madden, vice-president and portfolio manager at Goodreid Investment Council, who names the technology services company a Top Pick for 2018.
One of the few bright spots on the Canadian investment scene this year, CGI Group is up nine per cent in 2018 compared to the TSX which has lost over three per cent of its value.
Madden says there are a number of reasons for its success. “There’s an element of benefit from US tax reform here, as a lot of [CGI’s] business does come out of the US —their largest customer is the US government and the US military,” he said, in conversation with BNN.
“They’re increasingly weaving their own intellectual property into some of their client solutions, so that has long term margin implications for the company,” says Madden. “It’s undemanding in terms of its multiple — 15, 16, 16.5 times earnings. It grew earnings at about a ten per cent clip over the last year, and it’s been doing a series of small acquisitions to infill white space in the portfolio geographically and in terms of technology.”
Going forward, management at CGI has stated that their goal is to double in size over the next five to seven years. Last month, the company announced two new major contracts with SNCF, France’s public railway group, to help manage its human resource IT along with a portfolio of applications for its critical railway network maintenance.
“It remains to be seen whether [CGI] will pull the trigger on a large transformational acquisition, but they certainly have the balance sheet to do that and the wherewithal to integrate that, as they done oftentimes in their history,” says Madden. “They’re great compounders of wealth and have been for a very, very long time.”